Fundamentals of Portfolio Weights and Rebalancing
July 20, 2012 - Strategic Allocation
What are the fundamental considerations for portfolio weights and rebalancing rules over the long run? In the July 2012 version of his book excerpt entitled “Dynamic Portfolio Choice”, Andrew Ang elaborates these considerations as derived from two precepts: (1) periodic or conditional rebalancing of the components of a diversified portfolio is foundational to long-term investing; and, (2) target weights for portfolio components can vary for each rebalancing interval as investment opportunities change and investor liabilities, income and risk tolerance evolve. Using mostly theory and some simple example portfolios composed of U.S. stocks and Treasuries during 1926-1940 and 1990-2011, he concludes that: Keep Reading