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Assumptions

Rebalancing – What works in Volatile Markets? December 3, 2009 Alan Bergin, CFA Larry Thompson & Associates. Assumptions. Portfolio with 60% in MSCI World and 40% in the Barclay’s Aggregate One portfolio is rebalanced annually Other portfolio is not rebalanced at all. Does Rebalancing work?.

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Assumptions

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  1. Rebalancing – What works in Volatile Markets?December 3, 2009 Alan Bergin, CFALarry Thompson & Associates

  2. Assumptions • Portfolio with 60% in MSCI World and 40% in the Barclay’s Aggregate • One portfolio is rebalanced annually • Other portfolio is not rebalanced at all

  3. Does Rebalancing work? • After almost 35 years, rebalanced portfolio worth more

  4. Cumulative Market Value Difference (Rebalanced minus non-rebalanced) • Rebalancing is not always the best solution

  5. Asset Allocation shifts in non-rebalanced portfolio

  6. What About 2007-2009 • Rebalanced portfolio worth more • It looked much worse through March

  7. Cumulative Market Value Difference (Rebalanced minus non-rebalanced) • If not for strong 2009 recovery, rebalanced portfolios would be far behind

  8. Asset Allocation shifts in non-rebalanced portfolio

  9. Conclusion • Rebalancing appears to work over long time periods • Over short periods, it has mixed results • In volatile markets, review asset allocation strategy before rebalancing • Issues to consider: • Have a rebalancing plan – do not market time • Rebalancing frequency • Range based or date based? • What is the cost of the rebalancing? • Range based rebalancing appears to offer best trade-off in costs and potential to capture market movements

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