Behavioral Aspects of Rebalancing

Here's a recent letter by Rob Arnott’s firm, Research Affilitates, entitled "Why We Don't Rebalance." The article discusses the behavioral components of portfolio rebalancing. As it relates to investing, our rationality typically gives way to our emotions which results in buying high and selling low; in other words, a refusal to rebalance despite the sound logic behind the action. Rebalancing should prove to add significant value over the long term, but at times it does not make sense for certain investors. This article summarizes the firm’s view on rebalancing: it is vitally important but is a client-by-client decision.

This material is not intended to be used as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations. This is not an offer or solicitation with respect to the purchase or sale of any security.