Tara Siegel Bernard tells us that automatic rebalancing options are
becoming common at 401(k) plans, but the service is still a rarity for
online brokerages. TD Ameritrade and Fidelity are among the handful of
exceptions, she reports
in The New York Times. In a perfect world, these options would be
standard everywhere. Rebalancing, after all, is crucial for risk
management and earning a decent risk premium through time. Making this
essential task easier, by putting it on auto pilot, would be a huge plus
for investors.
You can, of course, rebalance on your own. The problem is that most
of us don't, at least not on a timely basis, perhaps not at all. The
price of inaction can be costly because the rebalancing bonus can be
substantial. For example, my research shows that a simple regimen of rebalancing a portfolio comprised of the major asset classes
improves performance considerably vs. an unrebalanced strategy over the
past decade-plus. Optimizing the process holds out the promise of doing
even better.
That's old news, of course. Numerous studies over the years find that
rebalancing is the foundation for successful portfolio design and
management. A few examples:
"Portfolio Rebalancing in Theory and Practice," by Yesim Tokat (Vanguard)
"Active Portfolio Rebalancing: A Disciplined Approach to Keeping Clients on Track," by John Nersesian (IMCA)
"The Importance of Portfolio Rebalancing in Volatile Markets," by Steven Weinstein, et al. (CCH Inc.)
"The Subtle Art of Rebalancing," by Bill Montague (Consulting Group)
Although the topic of rebalancing is no stranger to financial
analysis, it's premature to say that the subject has been exhausted as a
research topic. Identifying the ideal set of parameters that govern the
rebalancing rules is certainly in no danger of full transparency, as a
new paper from Research Affiliates reminds.