marotta's blog

Time to Rebalance Your Portfolio Again (2009-09-21)

by David John Marotta

The S&P 500 over the past six months is up over 40%. You have had smooth sailing and are beginning to feel comfortable again. Don't. It's time to tack once more and rebalance your accounts.

Studies show that rebalancing your portfolio can boost your returns by as much as 1.6% annually. This rebalancing bonus is measurable but by no means guaranteed. It works best in choppy volatile markets with asset classes that don't move in sync with one another.

It is always a contrarian move, expecting the wind to change. But when it does, rebalancing can fill your sails again. However if the market continues moving in the same direction, there can be a rebalancing penalty. The past year has been a little of both.

Investment Strategies Part 5: In Defense of Diversification (2009-08-10)by David John MarottaDiversifying your asset allocation among investments with a low correlation can and should reduce your portfolio's volatility and boost your returns. But critics are claiming this strategy is no longer valid. That's because they don't understand the nature of what happened in 2008.