When Is The Best Time To Rebalance Your Portfolio

? Is there a best time of year? Or should I rebalance my portfolio every quarter, or every month?

All these are reasonable questions to ask. Let’s delve into some data.

How often do people need to rebalance their portfolios?

The first thing you might notice is that it can be hard to tell what the distribution of all this data looks like. The mean appears close to 1 for both “every 4 months” and “every 6 months,” but maybe not exactly one interval apart. The median might look comparable as well, though it doesn’t seem too far off from the other two numbers either way. So how good are we at predicting when people should rebalance their portfolios? We plotted out how accurate our model was in predicting the percentage correct (the area under the ROC curve). The orange line shows about 20% accuracy, which means that our model will correctly predict 80% of times when someone should be doing a monthly rather than quarterly or biannual rebalancing. This gives us confidence that if we recommend monthly rather than quarterly or biannual re-balancing then they would likely get an average result anyway! But…we want more targets! How much improvement could we make if we told them it was critical to act now before next year (or summer) rolls around?! We plotted this out on top of the previous chart: As you can see