By Tom Bradley

Last week Chris and I met with Scott Robertson, a financial planner from Ottawa. Scott is a veteran and has a straight-forward, no-nonsense approach to his craft. That was clear when we asked him when and how often his clients re-balance their portfolios. He said without hesitation, “When they’re out of balance.”

That makes sense. Nice and simple. Why get hung up on quarterly or yearly. Just do it when you need to. Set a range as to how far the portfolio can stray from its long-term mix (5 or 10%), and then take action when the limits are exceeded.

I would only add that having a re-balancing rule based on the calendar (i.e. annually) requires less monitoring of the portfolio and totally takes the emotion out of it. It’s a crutch we can lean on when the heart is getting in the way of taking action. I think calendar-based rules are more ‘automatic’ than the range-based rules.

In either case, our view is that re-balancing makes sense for most clients given that (1) the long-term, strategic asset mix represents their best guess as to what’s appropriate for them, (2) calling the market in the short term is impossible and (3) it dampens down the volatility of a portfolio. A disciplined re-balancing regiment forces us to buy low and sell high without emotion getting in the way.