Question about asset allocation and rebalancing

Hi all,

So I believe I understand the gist beyond the 3 (or 4 or 5, etc.) fund portfolio and picking a few low cost ETF/index funds and letting then not paying too much attention.

But I feel like I don't fully understand the idea behind rebalancing your portfolio every now and then to keep your asset allocation the same.

Example: you put 50% in US stocks, 25% in international, 25% in bonds. At the end of the year, you have 48% US, 27% international, 25% bonds and you move 2% from international to US to get it back to 50/25.

Is there actually any data or studies that shows that this is the most effective move? The argument I've seen is that it prevents you from getting your assets trapped in a "bubble". But isn't it just as likely that, as in this example, international stocks are going to outperform US stocks for the next 20 years?

Submitted July 16, 2017 at 11:18AM by ThisIsTheWater


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