Rebalancing Bonus Graph

Here is a graph of the Rebalancing Bonus at Year 20. Most often, it costs you money.





The portfolios start with $10000. They have 50% stocks (S&P500) and 50% TIPS at a 2% (real) interest rate. I included no charges for expenses. I looked at 20 year sequences beginning in 1923-1980.

One portfolio allocation is held fixed via annual rebalancing. The other is allowed to vary.

I subtracted the balance without rebalancing from the balance with rebalancing. This shows the bonus in dollars. Most often, the “bonus” is negative.

Have fun.

John Walter Russell
September 29, 2008