- Significant deviation from a target risk profile can occur over time if a portfolio is never rebalanced.
- When viewed over multiple economic cycles, the choice of rebalancing approach makes little overall difference in terms of annualized return and risk.
- Rebalancing reduces risk and can increase risk-adjusted returns (vs. never rebalancing).
- Rebalancing during volatile market environments is accretive to both return and risk-adjusted return. This is likely due to increased compounding through a reduction in volatility and by “buying the dip” in equity drawdowns.
- In contrast, we find little benefit to rebalancing during benign market environments.