When diversifying their investments, many investors rely on the so-called 60/40 portfolio, in which 60% of assets are invested in equities and 40% in bonds. As their prices move differently, the respective ratios naturally also change. Pascal Kielkopf has analysed whether it makes sense to regularly return to the starting ratios.

The capital market analyst from HQ Trust calculated the performance of two investors, one of whom rebalances his portfolio annually and returns to the 60/40 ratio. The other, on the other hand, relies on Kostolany’s sleeping pills and simply lets things take their course. Pascal Kielkopf used the global indices MSCI ACWI and the Bloomberg Global Aggregate for bonds to calculate the return and the equity and bond ratios. His analysis covers the period from the beginning of 2000 to April 2024.

– “At first glance, the differences in performance are not that great, but they are all the greater when looking at the equity and bond ratios.”

– “The investor who rebalances annually achieved growth of 4.7 % per year. 100,000 euros would have become 306,000 euros.”

– “For the investor who did not change his quotas, the annual increase was 4.3 %. In this case, the 100,000 euros would have become 280,000 euros.”

– “However, the differences in the risk content of the portfolio were all the greater: without rebalancing, the equity ratio fluctuated between 32 and 70 per cent. With annual adjustment, the ratio also fluctuated during the year, but the interval between 46 and 66 per cent was significantly smaller.”

– “Whether equities or bonds ultimately achieved the slightly better return in this analysis depends on the period of the calculation and is not so relevant: Investors should rather make sure that their risk budgets are not massively overshot or undershot.”

With regard to a sufficient diversification of assets, Pascal Kielkopf says.

– “In principle, a portfolio with 2 asset classes is of course better than a portfolio that only focuses on equities or bonds. However, we recommend much broader diversification.”

– “When investing in several asset classes, regular rebalancing is even more important, otherwise the portfolio could become overly dominated by the asset classes that have performed well over time.”

Would more frequent rebalancing have brought additional benefits?

– “With regular rebalancing, whether quarterly or monthly, the investment ratios stick closely to the initial targets.”

– “However, allowing the investment ratios to “breathe” during the year has even had a positive effect on performance in the past.”

– “Even in view of the significantly higher fees, more frequent rebalancing would not have been worthwhile.”