Don't Re-Balance Your Portfolio

To re-balance, or not to re-balance--that is the question: Whether 'tis nobler in the mind to suffer The slings and arrows of outrageous fees] Or to take arms against a sea of charges] And by opposing ... end them. Inspired by William Shake-speare New research by Campbell Harvey, Duke, found that "investors need to understand that rote re-balancing is an active investment decision that increases risk. In an up market, you are selling soaring stocks; "all of a sudden your portfolio has done worse than if you had just let it run." Re-balancing kills compounding. Almost every broker/advisor tells you to sell when your stocks are soaring and buy something else in order to maintain your 60/30/10 or 80/20 asset allocation. But Warren Buffett says: We continue to make more money when snoring than when active. Berkshirehathaway.com Could it be that broker/advisors want you to sell every quarter to fit the brokerage firm's need to justify their advisory fee schedule? Most firms take their fees as part of the quarterly review and re-balancing myth. But does it help you to sell your soaring stocks when they are increasing in value? Perhaps selling at that time only helps the firm. Research tends to show that if you change asset allocation by using your annual contributions to buy the more depressed assets, you will earn more in the long term. You let compounding work. John Bogle, inventor of retail index funds, says that when we buy and sell securities, especially in the average mutual fund family, our costs can reduce our final nest egg by 63%. Conclusion: Don't re-balance and don't use high-cost funds.