Why are they smiling?
Our January 14 blog, titled Bear market, that is, bargain market territory. Chapter one tells us that Monday Morning Millionaire Program members smile as bargain prices, that is, buying opportunities begin to appear. Rarely do such buying appear as frequently as they did in 2018. (See below.)
Rebalancing after a 10% pullback was put in place when transaction costs were much higher than they are today. Forty years ago, $45 commissions were common and could go into hundreds or even thousands of dollars depending on the size of the order. Today, commissions are under $10.00 regardless of the size of the transaction. We can practically ignore them.
Now, history shows that 10% drops happen twice within three years whereas 5% drops occur more than twice a year. Would investors do better by rebalancing after 5% move rather than waiting for a 10% move?