Among devotees of strategic asset allocation, rebalancing is considered to be a crucial tool for risk management. Jason Zweig of the Wall Street Journal does the math and points out that rebalancing sometimes just makes things worse.
The truth is that no investment method is magic. Every single method ever devised has advantages and disadvantages; thus there will always be alternating periods of outperformance and underperformance. Retail clients, by their performance-chasing behavior, obviously believe otherwise. Sorry to have to break this to them-you’re better off doing careful due diligence to find a strategy likely to outperform over the long run and then just sticking with it.
