Rebalancing to get back to your initial stock / bond allocation is fine.WalnutCrunch wrote: ↑Wow. What an extreme example!
Rebalancing may or may not increase returns, but one important thing it does do is return our portfolios to their set asset allocations, therefore returning our investments to our predefined risk profile.
The problem I have is with rebalancing country specific funds, which people tend to underestimate in terms of just how risky they are.
A study showed that investing in 1 country specific index fund for 10 years is just as risky as investing in a global index fund for 1 year, in terms of probability of loss. A specific country can consistently under-perform for a decade, even a century. In my example above, by rebalancing every year, I was actually taking more risk by moving most of my money into 1 country.