Optimal Finance Daily - Financial Independence and Money Advice 3203: How I Rebalanced Through Perilous Times by Darrow Kirkpatrick on Investing During Market Volatility
Jul 6, 2025
Learn how a low-effort rebalancing strategy can keep investors grounded during turbulent market times. The approach focuses on simplicity and tax efficiency, allowing natural portfolio flows to drive decisions. Discover the concept of 'benign neglect' to preserve investments and avoid emotional pitfalls. With insights on maintaining a diversified portfolio and strategic minimalism, you'll find that less intervention can lead to greater long-term success.
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Limit Rebalancing Frequency
- Rebalance your portfolio no more than once a year and consider waiting several years between rebalances.
- You may even choose never to rebalance taxable accounts to avoid unnecessary costs and taxes.
Avoid Reacting To Small Changes
- Ignore small allocation changes under about 10% when deciding to rebalance.
- Avoid reacting to short-term market volatility to prevent excessive transaction costs and taxable gains.
Rebalance Using Cash Flows
- Use natural inflows and outflows, like new investments or withdrawals, to rebalance by buying underperformers and selling winners.
- This approach minimizes market timing errors, costs, and taxable gains.