Evaluation of a practical application of asset allocation and portfolio rebalancing techniques

This paper evaluates a practical application of portfolio composition and asset allocation. The hypothesis considered is whether a properly allocated portfolio with regular rebalancing can beat the general market on a risk-adjusted basis. A model is created using Vanguard funds to represent the desired asset classes. Several rebalancing schemes based on percentage thresholds and timing are evaluated.;The results of the analysis show that a portfolio of properly selected asset classes, that are rebalanced with regular discipline, outperformed representative market indices on an absolute and on a risk-adjusted basis over the study period. While regular rebalancing is required to achieve this result, the choice of a specific rebalancing scheme (of the nine evaluated) is not shown to be significant.