How Often Should You Re-Balance?

12/26/2011 11:00 am EST


Deciding how often to adjust your portfolio is often a problem for many investors, but John De Goey, associate portfolio manager with Burgeonvest Bick Securities Limited, has some suggestions.

John, how often and how should an investor go about that process?

Well, the first part is how often, and there’s no simple answer to that. It’s the sort of thing that you basically do it when you need it, so there are different models.

Some people like to do annually or semi-annually, some people do like 10% or 15% contingent model. There are just different ways that you can do it.

To me, the important thing is that you do it. How often is really a function for me mostly on market conditions. So, when the markets are more volatile, you should respond to that. If the markets are smooth sailing for a year or two, then you might not have to rebalance for a year or two. So, that’s how often.

The how? Generally with new money. So, if you are the sort of person who, let’s say, has 60% of your money in stocks and 40% in bonds, and you are now making an annual contribution for your retirement plan, if stocks are down, then you might be buying stocks. But if stocks have done well in the past year or since the last time you put money in, maybe that’s a good time to put money into bonds.

How has the recent market volatility affected that process?

Well, for the most part it’s been—if you think of the volatility from a week-to-week sort of perspective—it’s the sort of thing that can really get you caught in the weeds.

But if you think of it from a longer term… I happened to be on vacation when this all happened in the second week of August. So for me, by the time I got back, a lot of the markets had already rebounded the following week. For my clients I said, “Let’s just leave it as it is.”

Think of this way: Canada, the US, Western Europe, so far year to date, so far in calendar year 2011, they’re down by about 5% or 6%, probably not enough to trigger rebalancing. If you have a 60/40 portfolio once again, chances are you’re still pretty close to 60/40.

If you were 60/40 on New Year’s Day, you’re probably pretty close to that right now. You might be more like 57% or 58% on the stock side, but if you’re not wildly unhappy with that slight amount of variance, probably just it’s good to leave well enough alone for the time being.

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