reBalancing

My son-in-law sent me an interesting article on dilbert.com ... about rebalancing your portfolio. I recall playing with it some time ago. I guess I never understood this "annual rebalancing" ritual. (Neither, apparently, does Scott Adams.) So I searched the tutorials on gummy-stuff and found a spreadsheet which uses a bunch of annual returns for a collection of asset classes, picks out some random 25-year period, compares the return and volatility of a portfolio with annual reBalancing (to maintain some allocation of assets) to a Buy-and-Hold portfolio to see who had the larger return. Then it does this a jillion times ... to see who "wins". Using the set of returns for the S&P500 and 5-year Treasuries and an allocation of 80%+20% (and 5000 Monte Carlo repetitions), I see that reBalancing won about 40% of the time (but with smaller volatility). On the other hand, if we just look at all the 25-year periods from 1928 to year 2000, comparing the two rituals, we'd find that Buy-and-Hold "wins" about 60% of the time. Conclusion(s)? I have no idea. Some 25-year periods one wins ... some t'other wins. 'course, we're talking 25 years. Over the course of 25 years the situation can change. Here's 25 years starting in 1972: Rebalanced is winning ... uh, losing. Perhaps the main advantage is psychological. If (for whatever reason) you think X% assetA + Y% assetB is good, then when it deviates from this you'd want to rebalance to maintain what you thought was a good allocation ... unless you'd changed your mind, eh? On the other hand, changing allocations seems like a reasonable thing to do as one nears retirement ... to preserve gains over umpteen years of investing. For example, our grandkids each have a College Fund (set up by my son) which begins fairly aggressive when they are toddlers, like so: and ends up (at college age) at 100% Money Market.