I’ve posted Entry #30 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Rebalancing Hurts As Often As it Helps.
Juicy Excerpt: A price jump of 20 percent would have caused the investor’s stock allocation to go higher still. Rebalancing would have brought it back to 70 percent stocks. Rebalancing in this case would have pulled the allocation a bit in the right direction. So it would have been a plus.
But what if prices fell 20 percent instead? In that event, rebalancing would have required the investor to buy stocks and thereby to pull his stock allocation back up to the dangerous 70 percent level. In this case rebalancing would have been a negative.