Rebalancing System Allocation

[ScottMcNab]

Anyone noticed allocations to their different systems getting too far out from original allocations over last year….. assuming there was a good reason for the % allocated to each system in the first place then it would make sense to also re-balance the system allocations maybe once a year ? Be interested to hear how others approaching this

[RobGiles]

Scott, do you mean for e.g. that the momentum systems M2M P&L has way outpaced another system (say mean reversion), so you are looking to take profits in the former and reallocate to the latter to bring it back into line where you were at a year ago?

[TrentRothall]

I’d be wary of affecting the effect of compounding over the years to come, you would be kicking yourself if you reduced the allocation to a well preforming system to re-balance only to see it keep out preform other systems over the coming years.

[RobGiles]

Trent Rothall wrote:

I’d be wary of affecting the effect of compounding over the years to come, you would be kicking yourself if you reduced the allocation to a well preforming system to re-balance only to see it keep out preform other systems over the coming years.

I’d agree with that Trent

[ScottMcNab]

Thanks Trent and Rob…I’m a bit uncertain ..if I have only allocated (eg) 10% to a highly leveraged (4x) MOC system then when I look back to the 2008 scenario, I can see that the MOC might do very well and the momo systems would do poorly…nothing new there….but over the years the composition of the porfolio of systems would start to drift away from what originally wanted….may well end up with more volatility in portfolio than wanted as the more volatile system may outperform the others….maybe that doesn’t matter unless becomes significant change..I have tried to read more on google since I posted and have seen some advocate a % change to trigger a rebalance ….but appreciate the point you have raised too…perhaps it is a matter of potentially sacrificing higher returns to keep the original allocations ?

[Nick Radge]

Remember that simple is usually best so don’t overthink it.

Rebalance once a year.

Solved.

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