For a long-term 60/40 portfolio, never rebalancing SPY yields higher returns than quarterly rebalancing, with comparable risk metrics, but increases exposure to tech sector concentration risk.

All right. Uh hey, let's go back over here to SPY because it's time for our lesson of the day. How often should you rebalance? Longer term investors, right? Uh your 401k, like I know it does it automatically, and you can pick like 1 month, 1 quarter, every 6 months, once a year.

What should you pick, right? So, our friends over our partners actually over at YCharts did this study. So, their study was better than mine. I happened to see it when I was putting together my study and said, "I'm just going to steal your stuff."

And they're okay with that, they actually so that's fine.

We're going to look back about 30 years and we're going to do a 60/40 portfolio, all right?

So, this is not and we're and we're going to actually define this here. The first thing is I promised I'd tell you exactly what the answer was, uh 80 percentage points better performance if you never rebalance.

Now, obviously I'm not going to say never rebalance, right? Your life changes, your goals change. A lot could happen over 30 years. Should you be taking that risk? Well, according to them, let's see if it's actual risk here.

So, we're going to show a 623% um this is long-term performance, uh almost 30 years, uh return if you never rebalance, 542 if you did quarterly just automatically, and um I'll show you one more thing here. Yeah, there it is.

Here's the funds. So, if you want to do this yourself and and I'm not promoting YCharts, but like I I know that their software can handle it, we use it here. Uh but, you know, this is their stuff and of course their software.

Uh they used Vanguard funds because it gave us the greatest amount of history with the least amount of searching around for other stuff, and it's also not cherry-picking because Vanguard does not often, if ever, go against their prospectus or change their prospectus.

You look at a lot of Fidel Well, some Fidelity funds, you're like, "Oh, it was this way and then 10 years ago you changed the whole model, right?" So, they wanted to find stuff or they wanted to find stuff that was not going to change.

They got VTSMX, you're going to bonds, international short-term bonds, and emerging market stocks. Now, quarterly, we're going to actually reset every 3 months. We're going to measure where this is at, we're going to reset back to this target. Annual, obviously you know what that is.

A unique one that I thought was cool for this study was a 10% drift. Only rebalance if the drift from any one of these whole from the allocation goes 10% higher or lower. In other words, 70/30, right? Oh, 80/20, is that a thing?

And then obviously the the set-it-and-forget-it person there that just never looked back. Okay. How many times do we have trades? This is not such a big deal anymore, but we used to point this out in studies because it'd be like, "Hey, if there's 115 trades, you just cost yourself commissions."

It's not really that that most people don't pay commissions anymore. But you got 115 of them.

Uh you have once a year, of course, there'd be 29 of them cuz it didn't include this final year. It's not over yet or that last year. The 10% drift went eight times, which is cool.

I want to show that. And then of course never was never.

Okay. I'm going to I'm going to help you guys out here. Oh, can I zoom in a little bit? Uh maybe not. Okay. So, what we're looking for is drift here, right? So, the purple line, right?

What we're showing there is the actual quarterly drift. So, how often in one quarter, see this guy right here? How often did we drift well away from our target, that 60/40?

And you can see the quarterly drift is not very much. There was some obvious times in there if you really want to hone in on that. That's 2008. It'd be normal, right? If you look down, yeah, it'd be normal to see some garbage there.

Uh that was that. You got uh COVID in there as well.

But we're showing the average drift quarterly 1.3%. Anybody can live with that. Annual 2.3%, which I thought was small, but that's it. And then 10% obviously is going to be 1.2.

And if you never ever rebalance your uh full your What do you call it? Your average yearly drift uh got you into um a 12%.

Okay. Performance-wise, we already said if you never rebalance, you perform better 7.14% of the time it I'm sorry, annualized returns. Uh you can work your way down. I don't have to read all the numbers for you.

What you can see is that in the last couple years, the spread, you just want to be a really dorky about that green line versus the other. See it spreading out there?

Okay, remember, you never rebalance, right? So, don't think I'm like not going to talk about that. You never rebalance, so what happened? You became that 38 plus percent in tech, right?

Maybe a little bit more if the way if you were adding money, right? Oh, it could be even more.

So, and what's been performing really strongly the last couple years? Tech, right? What happens if tech doesn't perform so well going forward and you never rebalance? Yeah, you're going to feel it, right? So, just know that.

Now, what's funny is year by year performance was basically the same, right? Over time, of course, you had slight gains in that never rebalancing. See how it's outperforming, outperforming, outperforming, outperforming.

It does outperform in the downside. So, you got to keep that in mind.

But the the sort of comparison year of each allocation there or each each rebalancing focus is really kind of the same. So, I thought that was pretty interesting myself. All right, one thing I want to point out is it gets a little geeky.

If you want to go read the study, I believe it's on their website. You can actually look at the same. I just literally took their exact images, so I'm not pretending like I made this.

The max drawdown, cuz someone's going to go, "Yeah, yeah, but if you never rebalance, you become heavier." Which is true. In the overweight areas, you're essentially pushing your winners farther instead of trimming them off and putting the money towards the losers. Yeah, I get it.

However, max drawdown, quarterly rebalance, 37.4%. Never rebalanced, K, like basically the same, right? Which I wouldn't have guessed either. So, you think, "Oh, I never rebalance and I'm taking more risk.

Oh, when the market falls, I'm going to feel it more." Yeah, you do, but it's actually not that much.

So, really cool. And then the upside downside ratio, this is a mutual fund um thing. So, if you're ever in that space or you manage a mutual fund, they don't I mean, they do focus on performance, but the upside downside ratio is really important to measure your success as a fund manager.

And 98.9% just means what percentage of the upside were you participating on relative to the percentage on the downside? If the market was up 1%, what did you get? If the market was down 1%, what did you do?

The goal would be to be down 0.9% when the market falls 1 and be up the 1% or better on the way up.

So, that's kind of how they get measured there. And I just thought it was pretty cool that even that wasn't that far off. It's a little little bit of a geeky thing to talk about there, but

Um this is just highlighting through the different crashes there. So, as you went through that 2020 crash, okay, uh I'm sorry. It's really small. You you probably can't see it, but of course never rebalancing got hit a little bit harder, 31% versus 28.

And then when we go to 2022 as we had that not crash, but pullback there, of course still going to pullback more. However, on the way back up, bam, back to highs. Who Who got back to highs the quickest?

Right? And that That's all that's showing. That's not raw performance. Pretty sweet.

Um here's another or here was the other part that I thought was interesting and then we'll wrap it up from there and go into stocks in the news and answer any questions if you have any questions uh cuz here we go. It's getting hot in here.

Uh if you're adding money, like the rebalancing thing, okay, fine. That's the data. That's the study. But what if you add a thousand dollars or you put money in your paycheck to it?

Think about what would happen. If you never rebalanced, the dollars that you put in would be trying to skew back to that target allocation. You would be adding to your losers.

However, what they found is that yeah, as your account grows, the money you're adding from your paycheck is making obviously less and less of a difference. So, just saying I'll never rebalance, but then I'm going to add money from my paycheck or put in, you know, a hundred bucks a month or whatever you do, is really not going to move the needle.

So, uh anyways, I don't need to tell you what it doesn't prove. Uh one mixed