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The Journal of Wealth Management

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Primary Article

Rebalancing Strategy for Stocks and Bonds Asset Allocation

Maretno A. Harjoto and Frank J. Jones
The Journal of Wealth Management Summer 2006, 9 (1) 37-44; DOI: https://doi.org/10.3905/jwm.2006.628682
Maretno A. Harjoto
An assistant professor of finance at San Jose State University in San Jose, CA.
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  • For correspondence: harjoto_m@cob.sjsu.edu
Frank J. Jones
A professor of finance at San Jose State University in San Jose, CA.
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  • For correspondence: jones_f@cob.sjsu.edu
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Abstract

This study examines the investment strategies of stocks and bonds portfolios under volatile markets. We find that the portfolio with rebalancing outperforms the portfolios without rebalancing. It also outperforms the portfolios with undiversified investments consisting of stocks only or bonds only. Specifically, the fifteen percent up or down rebalancing threshold on a 60% stocks and 40% bonds initial portfolio offers the best relative returns to risk. We find that fifteen percent rebalancing is also superior under both the lump-sum and the dollar-cost averaging investment modes. The optimal rebalancing strategies depend on the path of the market movements. Investors need to rebalance their asset allocations, but not frequently.

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The Journal of Wealth Management
Vol. 9, Issue 1
Summer 2006
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Rebalancing Strategy for Stocks and Bonds Asset Allocation
Maretno A. Harjoto, Frank J. Jones
The Journal of Wealth Management Apr 2006, 9 (1) 37-44; DOI: 10.3905/jwm.2006.628682

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Rebalancing Strategy for Stocks and Bonds Asset Allocation
Maretno A. Harjoto, Frank J. Jones
The Journal of Wealth Management Apr 2006, 9 (1) 37-44; DOI: 10.3905/jwm.2006.628682
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