Replies to post #31306 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

The perfect (maximum benefit) rebalance timing occurs if you exactly time the peaks and troughs.

If buy-and-holders don't rebalance and just ride the peaks and troughs up/down then there's no rebalance benefit captured.

We can't predict the peaks and troughs however, so the next best bet is to try and cost average in/out around those levels.

Set the bands too wide and you don't trigger any rebalancing (so you're the same as buy-and-hold). Set the bands too narrow and trading costs will negate any rebalance benefits.

At the rebalance point either the price continues on its current trend in which case having delayed rebalancing would have been better. Equally however the trend might reverse in which case the choice of rebalance point was good timing.

AIM uses a form of letting the trend build, typically by a 25% price move amount, after which it repeatedly adds (or reduces) at further trend continuation 5% price moves. So around the peak or trough it has averaged in (or out) at a reasonable level.

Permanent Portfolio is a form of AIM (constant value type method) but with its 'Portfolio Control' based upon the average value of all four components (sum of stock + cash + gold + bond values divided by 4). Three components act as one components 'cash' reserve (repeated four times). When any one deviates away from the average of all four it triggers a rebalance event to reduce (or add) to/from that component. The 'Portfolio Control' as such is more dynamic.