Buy and hold, asset allocation, rebalancing


One of the Monday Morning Millionaire Program members’ habits is to buy and hold. There is no evidence to show that market timing is useful.

Another one of the members’ habits is to rebalance to a personal asset allocation when the market goes either up or down by a certain percentage.

What is that percentage? Is it the same on the upside as it is on the downside? How do we square buying and holding with rebalancing, a form of market timing?

As much of our investing as possible should be rules-based rather than judgment-based. Sound rules are inviolable. Judgment is often wrong. Nevertheless, investors need to use judgment frequently. Investor judgment needs to be adjustable in order to account for changes in the investing environment. For example, in the 1960s, trading commissions could run up into hundreds of dollars. Today, they are much closer to zero dollars.

In the 1960s, rebalancing effectively needed to have a percentage of portfolio value change sufficiently to offset trading costs.

Today, we can ignore the trading costs.

Rebalancing at smaller percentage pullbacks makes sense since they are more frequent. Rebalancing would take place into a higher trending market over time.

If we wait for a 10% pullback to rebalance, as we used to, we could miss out on several years of strong returns as well as rebalance at levels much higher when the pullback occurs.

We could improve results by rebalancing a smaller amount at a 5% pullback and then a larger amount at 10% and larger yet at 15% and so on.

It is a judgment call; it will work in our favor regardless of the percentages we select.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.


Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

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