Rebalancing Vs doing nothing

bowlhead99

gadgetmind wrote: »

How about CGT rather than strategic bond?

Yes, something like that would do a similar job. I used to hold it some years ago but had dropped it on the basis that that the things it holds from time to time that aren't straight bonds or prefs - like investments in other investment trusts which also hold equities or PE/hedge etc - are perhaps a distraction from being able to know what you really have exposure to.

As I already had things like PNL and RIT where the manager was making strategic asset allocation calls, it was perhaps simpler to be able to look at that particular bit of the portfolio and know, OK, this bit is bonds - i.e. without too much asset allocation within that asset allocation. So, building a portfolio with a dedicated equities allocation and a dedicated (strategic) bonds allocation and a couple of mixed asset funds in the middle, was simpler to get ones head around, rather than having yet another mixed asset fund close to the bonds-ish end of the spectrum and saying that would do for the bonds bit.

Of course, giving a strategic bond fund manager free rein to allocate between government bonds and junk bonds and cash - which is a pretty wide remit anyway - and then rebalance the result among your other portfolio constituents... is not fundamentally smarter than giving an investment trust manager a slightly broader remit to get you bond-like returns in the manner that CGT does.

darkidoe

ChopperST wrote: »

I rebalance quarterly and add in extra cash at the end of the tax year to keep in line with my asset allocations, try to avoid selling at all and use new cash to keep everything in line as my portfolio is still relatively small.

This article from marketwatch (US bias) does a retrospective analysis of rebalancing and seems to illustrate the point well...

http://www.marketwatch.com/story/the-right-way-to-rebalance-your-portfolio-2014-02-18

Interesting read. But it's worthwhile noting the rebalancing costs as well. This probably doesn't matter if you have a huge investment where maintaining the status quo of the allocation will reduce risks. But if u are rebalancing across multiple funds 4x per year, you might be drawn into costs up to a couple of hundreds per year. Although from the retrospective analysis, it seems the gains at the end seems to more than cover the costs.