Portfolio Rebalancing & Earth's Rotation Around the Sun

What has portfolio rebalancing got to do with the amount of time it takes the earth to revolve around the sun?

Did you say nothing?

Yet advisers typically rebalance their portfolios on a periodic basis, annually. Not to mention discretionary MPS, where portfolios are rebalanced sheepishly on a quarterly basis!

While annual rebalancing isn’t a terrible idea, it is less than optimal.

The time-consuming process of obtaining client permissions alongside the abundant opportunity for error, isn’t ideal.

Quarterly rebalancing on the other hand is the work of the devil!

And you should know by now, that we don’t make a statement like this without first crunching the numbers…

In our latest research paper, we examine the impact of different rebalancing methods on £100k invested in a 50/50 portfolio over a 30 year period.

We ran every rolling 30-year period from Jan 1915 to Dec 2019, which gives us 910 scenarios for the following rebalancing options:



-5% Drift Tolerance

-10% Drift Tolerance

Given that there are 910 scenarios, we ranked the terminal balances into percentiles, i.e. worst, 10th, 20th, 30th …. 100th percentile for each rebalancing method.

In the full paper (available below), we dig even further to look at key metrics of each of the rebalancing options. We make a case for tolerance-based rebalancing and how technology can help do the heavy-lifting involved.

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