Rebalancing: Less is More?

Rebalancing: Less is More?

February 3, 2014 Uncategorized
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(Last Updated On: February 3, 2014)

We did a quick study on monthly vs. annual rebalancing for the IVY5 asset allocation portfolio.

We did buy and hold and moving average rule variations.

Result: little difference between monthly and annual return rebalances.



Buy and hold weights don’t differ that much from monthly equal-weight rebalanced weights

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Let’s recite: activity does not equal value. 

Again: activity does not equal value.

And one last time: activity does not equal value.

Okay, I still disagree with that statement because my system 1 refuses to believe it, but whatever…

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Definitions of common statistics used in our analysis are available here (towards the bottom)

About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • Francisco

    One question regarding the study: when you calculate the 1,12 MA safety rule with annual rebalancing, do you mean you only check whether the index is under its 12 month moving average once a year (in January, perhaps)?

    Or you exit and entry every month as needed with the same money left from the previous buy/sell and rebalance the total amount at the end of the year?

  • S

    Have you all looked at the impact of which month the annual rebalance occurs in, generally or for QV? In the latest edition of What Works on Wall Street the author introduces a composite annual rebalance that averages the returns of having started in all 12 months. The effects are profound, not sure how meaningful they are though. Thoughts?

  • Yes, we have looked at nearly all possibilities at this point. Stock prices are incredibly volatile, as are stock portfolios. There can be a lot of variance across formation periods. I haven’t seen the updated version of WWOWS, but I imagine the figures are merely capturing this aspect of stock prices. Can you share some of the stats you’re seeing? CAGRs can drift 100-300bps across a lot of strategies…sometimes more…

  • Your second notion: monthly MA check, but an annual rebalance of the underlying positions.