Periodic Rebalancing vs Immediate Rebalancing

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Feb 2nd, 2021 5:29 pm

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Feb 2nd, 2021 5:10 pm

braveblade [OP]: Deal Addict; Jan 22, 2009; 3574 posts; 1573 upvotes

Feb 2nd, 2021 5:10 pm

Periodic Rebalancing vs Immediate Rebalancing

My employer puts my pension contribution into a fund that I don't like that much. I have decided to switch the fund to another fund that tracks S&P 500 (pretty much like VOO). While I'm doing the switching, they are asking me to select Rebalancing type. I was given the choice of:

1. Immediate rebalancing
With immediate asset rebalancing, the investments in your portfolio are rebalanced right away to correspond with your investment instructions.

2. Periodic rebalancing
With periodic asset rebalancing, the accumulated amounts are automatically rebalanced at regular intervals to correspond with your investment instructions.

Should I go with Periodic rebalancing? Thanks!

5 replies

Feb 2nd, 2021 5:14 pm

cloak: Deal Addict; Sep 2, 2009; 2827 posts; 2858 upvotes; Ottawa

Feb 2nd, 2021 5:14 pm

Are there any differences in fees?

Feb 2nd, 2021 5:15 pm

braveblade [OP]: Deal Addict; Jan 22, 2009; 3574 posts; 1573 upvotes

Feb 2nd, 2021 5:15 pm

cloak wrote: ↑ Are there any differences in fees?

There is no fee for either of them.

Feb 2nd, 2021 5:21 pm

craftsman: Deal Expert; Jan 27, 2006; 21509 posts; 15083 upvotes; Vancouver, BC

Feb 2nd, 2021 5:21 pm

Immediate rebalancing may be 'safer' in terms of locking in gains - ie one fund goes up 1% then that 1% is sold off and rebalanced into the other funds right away. BUT it may not allow you to take advantage of longer term trends - ie that fund 'always' goes up so by constant rebalancing, the overall gains are reduced as you can't let some of those gains 'ride'.

Periodic rebalancing is just the opposite of Immediate - not as safe as you won't lock in gains right away but you can ride trends better - ie if the fund goes up 1%, then the 1% will be allowed to compound until the periodic rebalancing happens. With immediate rebalancing, compounding basically can't happen.

How much difference will it make? Not much in the short term and on small amounts. Much more in the long term due to compounding.

+1

Feb 2nd, 2021 5:26 pm

braveblade [OP]: Deal Addict; Jan 22, 2009; 3574 posts; 1573 upvotes

Feb 2nd, 2021 5:26 pm

craftsman wrote: ↑ Immediate rebalancing may be 'safer' in terms of locking in gains - ie one fund goes up 1% then that 1% is sold off and rebalanced into the other funds right away. BUT it may not allow you to take advantage of longer term trends - ie that fund 'always' goes up so by constant rebalancing, the overall gains are reduced as you can't let some of those gains 'ride'.

Periodic rebalancing is just the opposite of Immediate - not as safe as you won't lock in gains right away but you can ride trends better - ie if the fund goes up 1%, then the 1% will be allowed to compound until the periodic rebalancing happens. With immediate rebalancing, compounding basically can't happen.

How much difference will it make? Not much in the short term and on small amounts. Much more in the long term due to compounding.

Thank you! The amount is 30K and I have 25 years until retirement. So I guess I should go with Periodic rebalancing?

Feb 2nd, 2021 5:29 pm

craftsman: Deal Expert; Jan 27, 2006; 21509 posts; 15083 upvotes; Vancouver, BC

Feb 2nd, 2021 5:29 pm

braveblade wrote: ↑ Thank you! The amount is 30K and I have 25 years until retirement. So I guess I should go with Periodic rebalancing?

Yes and with 25 years to retirement be vastly overweight equities - ie close to 100% then revisit in 15 years.

+1

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