Quarterly Rebalancing: Why It’s Unnecessary

by | Sep 18, 2013 | Asset Management, Podcasts

Quarterly rebalancing and asset allocation models go hand in hand. We don’t have much faith in either here at Mullooly Asset Management. Tom and Brendan discussed some reasons why the traditional asset allocation model fails in last week’s podcast. This week they cover the topic of quarterly rebalancing.

So what is quarterly rebalancing and how does it work? In most cases it consists of your advisor reviewing your portfolio once a quarter, and comparing it to the asset allocation chart you started with. Naturally some sections of your portfolio will have grown, while others shrunk. Rebalancing means selling off the portions that grew, and reinvesting that money into areas that fell behind. So essentially, rebalancing means selling what’s been working, and adding more money to what hasn’t been working. Seems kind of ridiculous, right?

The term rebalanIs quarterly rebalancing necessary?cing became extremely popular in 2000. Many people were too heavily invested in internet stocks, and ended up losing money that year. Some advisors and brokers argue that quarterly rebalancing helps to avoid situations like that from happening again. We have a different way of preventing that here at Mullooly Asset Management. It’s called point and figure technical analysis. Point and figure charts provided by Dorsey Wright and Associates gave clear signs on March 14, 2000 that all internet stocks and small caps were no longer in favor. In fact, signs could be seen for weeks before that as well. Point and figure technical analysis provides us with the signals we need to efficiently manage your portfolio.

An article featured on Forbes earlier this year called quarterly rebalancing, “busy work your adviser uses to justify his fee”. We also see quarterly rebalancing as unnecessary here at Mullooly Asset Management. Rather than make changes to your portfolio based on what time of year it is, we keep our eyes on the point and figure charts. When the charts change, we change.

Make sure to listen to this week’s Mullooly Asset Management podcast for more on the topic of quarterly rebalancing!

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