How much does a rebalancing strategy take away from the APR (annual percentage return) from just keeping money in the S&P500 using a market index exchange-traded fund (ETF) such as SPY, VOO or IVV?
Monday Morning Millionaire Program Answer:
Rebalancing is a risk management technique and not a method of maximizing returns. Just keeping money in the S&P500 using a market index ETF will give investors the highest return but the cost is greatest portfolio value fluctuation. For an evidence-supported answer, it is useful to review the habits of highly effective investors.
- Having an early, disciplined savings program
- Self-directed (do-it-yourself) investing
- Buying the entire US market
- Buying and holding
- Buying low, selling high
- Avoiding complexity
Let us now look at a detailed answer.