Portfolio rebalancing, dollar cost averaging, and the need for a broader approach to income investing are the focus of recent analyses done by Vanguard, J.P. Morgan and the Financial Planning Association (FPA).
Best Practices for Portfolio Rebalancing – Vanguard Research
The primary goal of a rebalancing strategy is to minimize risk relative to a target asset allocation, rather than to maximize returns.
A portfolio’s asset allocation is the major determinant of a portfolio’s risk-and-return characteristics. Yet, over time, asset classes produce different returns, so the portfolio’s asset allocation changes.
Therefore to recapture the portfolio’s original risk-and-return characteristics, the portfolio should be rebalanced.
In theory, investors select a rebalancing strategy that weighs their willingness to assume risk against expected returns net of the cost of rebalancing. Our findings indicate that there is no optimal frequency or threshold when selecting a rebalancing strategy.
Return Measures and Dollar Cost Averaging – Journal of Financial Planning
“While the debate concerning dollar cost averaging versus lump sum investing rages on, we believe the debate should center on how to accurately measure investors’ true returns,” the report explains.
Other key points in the piece: