When and How to Rebalance for Optimal Returns
By implementing a disciplined rebalancing strategy, investors can maintain control, lock in gains, and reduce exposure to unwanted risks. Ron McCoy and Freedom Capital Advisors are ready to help design a personalized rebalancing plan that aligns with your financial goals.
Portfolio rebalancing is one of the most critical—but often neglected—components of precision investment planning. High-net-worth investors aiming for sustained growth and risk management must understand not just the importance of rebalancing but the strategic timing and methods that optimize returns. Ron McCoy emphasizes that disciplined, tactical rebalancing is a hallmark of professional-grade wealth management.
What Is Portfolio Rebalancing?
Rebalancing is the process of realigning a portfolio’s asset allocation back to its target mix after market movements cause drifts. For instance, a 70/30 stock-bond portfolio may shift to 80/20 in a bull market, unintentionally increasing risk. Rebalancing trims outperformers and redeploys capital into lagging assets to maintain the investor’s risk profile.
Source: Morningstar – The Power of Portfolio Rebalancing
Why Rebalancing Matters
Failing to rebalance can lead to overexposure to risky assets or missed opportunities in undervalued sectors. Studies by Vanguard show that disciplined rebalancing can add 0.35%–0.60% in annualized returns while smoothing out volatility.
Case Study: Staying Balanced in a Bull Market
A client with a $5M 60/40 portfolio saw equities balloon to 75% after a strong year. By rebalancing back to 60/40, they locked in gains and reduced exposure just before a market correction, preserving nearly $400,000 in capital compared to a non-rebalanced portfolio.
Best Practices for Precision Rebalancing
Ron McCoy’s strategy focuses on:
1. Calendar-Based Rebalancing
Set quarterly or annual rebalancing checkpoints, ideal for investors wanting consistency.
2. Threshold-Based Rebalancing
Trigger rebalancing when asset classes drift more than 5% from target allocations, a method proven to improve risk-adjusted returns.
3. Opportunistic Rebalancing
In volatile markets, rebalance proactively to take advantage of temporary dislocations.
Actionable Tips for Investors
- Use Tax-Advantaged Accounts: Prioritize rebalancing within IRAs and 401(k)s to avoid immediate tax consequences.
- Coordinate With Dividends: Reinvest dividends strategically to aid in rebalancing without incurring extra trading costs.
- Monitor Correlations: Adjust your targets when asset correlations shift, ensuring rebalancing keeps your portfolio diversified.
Ron McCoy’s Expert Perspective
Ron’s tactical rebalancing approach combines market insight with tax efficiency, ensuring clients maintain optimal risk exposure while capturing long-term growth opportunities.
