Out sub-portfolios are all slightly different, due to ages of their beneficiaries. On average though, they are close enough to 70/30 equities/non-equities (bonds and cash). In context, I think they can be considered loosely analogous to a classic 60/40 equity/bond portfolio.
I was wondering whether anyone has a reference to any theoretical work done on when/how/why etc to rebalance such a classic portfolio? I would be grateful for such information.
Absent that, my current thinking runs as follows
- 1. Equities +/- 10%: Rebalance as soon as practical (i.e. especially in the case of a crash, wait until spreads re-tighten to acceptable levels)
2. Equities +/- 5%: Rebalance quarterly
3. New Contributions: (Partially) rebalance monthly - which is what I already do
4. Otherwise: Leave alone
The theory re (1) above is that one might miss some further up/downside, but won't miss the opportunity that a correction allows. For the avoidance of doubt, +/- 10% on a 70% equity portfolio equates to +/- 7% of the whole portfolio (i.e. the equity ratio band would be 63% to 77% before forced action).
Thoughts welcome.
Regards, Newroad