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Saturday, September 19, 2009

Mythbusting: Frequent Rebalancing improves portfolio returns

An interesting article published by Fundsupermart on "Mythbusting: Frequent Rebalancing improves portfolio returns". It employs a statistical approach to determine frequent rebalancing of portfolio actually improves return is a myth or a truth . The result of the study seems to conclude that the more frequent the rebalancing is, the less profitable the portfolio will be.

However, the study did point out a fidelity - transaction costs are not considered. If transaction costs were to factor in, more frequent rebalancing will definitely result in more transaction costs and thus significantly lower profit. Likewise, transaction will also result in smaller gains for annual rebalancing portfolio too.

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