How often should you rebalance?

Rebalancing can add 300 to 400 basis points of return to a portfolio.

So, “it might be assumed the more often you rebalance, the better things should be,” says Adrian Banner, CEO of INTECH Investment Management and manager of the Renaissance U.S. Equity Fund.

That’s not the case, however, since high trading costs can eat returns, he adds. As a result, “it might be desirable to do a partial rebalance. If the position is close enough to its target, [for example], don’t trade.”

Read: 2 rebalancing traps to avoid

Banner says the benefit of partial rebalancing, which you should do weekly, is you can cut down on how much you need to completely rebalance a portfolio, which should only be done once a month.

Read: Is tracking an index worth the cost?

To determine the proper frequency, “you have to understand what you’re rebalancing to,” he notes. Say you’re managing “an equal-weight portfolio and you only rebalance quarterly. You [make] fewer trades but they tend to be bigger [trades] since stock prices would drift more from the original equal-weight position.”

He finds, “Doing more trades that are smaller can add up to [the same cost] as doing a few large trades.”

Read: Order rules may stifle retail trading

So, always consider your client’s objective in rebalancing as well: “If you [make] a lot of small trades, you can pay more in ticket charges, but you won’t impact the market as much” as you would when making large trades.

Read:

Add alpha by rebalancing

Making money in softer markets

With rebalancing, less is more

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.