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