iirc from reading David Swensen's book yearly rebalancing has been slightly more effective than semi-annual, and ~1% better than quarterly. So, rebalance annually or semi-annually and you should be fine.
Generally within +/-5% of target allocation is sufficient to maintain a desired risk/diversification level. For a typical portfolio invested in unleveraged equities and bonds this might require rebalancing every 1 or 2 years. More volatile instruments and assets might require more frequent rebalancing.
Rebalancing by set asset targets is a good way to approach portfolio rebalancing since markets can change more in some time periods than in others. A standard rule of thumb is to rebalance when an asset allocation changes more than 5%—ie. if a certain subset of stocks changes from 15% of the portfolio to 20%.
You'll want to rebalance based on your entire portfolio, not just a single account, so I'd never do this, but if there's no cost involved, and you ave no other investments, sure, go ahead and do it. Yes, you should do it.
Check on a schedule, and rebalance if any class is off by 10% or more of it's target (meaning your 35% large-cap is below 31.5%, or your 5% cash is more than 5.5%). When you rebalance, touch as few classes as possible to bring things into balance.
Adjust based on your preferences, but starting positions with a 1/4th to 1/2 of your total allocation works well. You can do some quick math and figure out what portfolio percentage you want to allocate to a new position. Ease into it, slow and steady.
So, rebalance annually or semi-annually and you should be fine.
Remember that over the long term, stocks have a significantly higher expected return than bonds. ... For this reason, rebalancing a portfolio of stocks and bonds is therefore likely to lower your returns, not increase them.
Rebalancing your portfolio on your own, without the help of a robo-advisor or investment advisor, doesn't require you to spend any money.
Use tax-favored retirement accounts.
Taking gains inside plans such as 401(k)s and individual retirement accounts (IRA) will not generate current taxes. Therefore, Ellen may be able to do some or all of her rebalancing, tax-free, by moving from stocks to bonds within her IRA.
"Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation. For example, say an original target asset allocation was 50% stocks and 50% bonds."
Financial planners recommend you rebalance at least once a year and no more than four times a year. One easy way to do it is to pick the same day each year or each quarter, and make that your day to rebalance. By doing this, you will distance yourself from the emotions of the market, Wray said.
Rebalancing is generally a good idea, since it's a disciplined way to sell high and buy low. Within a 401k, you can transfer your money among the available investments and do so without triggering tax consequences (which might happen in a nonretirement account, such as taxable income from capital gains).
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