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Investors should think twice before rebalancing their portfolios because the costs of doing so can easily exceed the benefits.

To illustrate, I'm going to focus on a simple, balanced portfolio that's split equally between Canadian bonds, Canadian stocks, U.S. stocks and international stocks.

(You can easily construct a low-cost portfolio that tracks this asset allocation using the similarly named e-series of index funds from TD Bank.)

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Once the portfolio is set up, its holdings will grow at different rates over time. One component might expand, or shrink, much more than the others, causing the portfolio to become lopsided.

Here's the thing: In most cases, Canadians with wildly different mixes of these four basic assets obtained very similar returns over the past 35 years. That might come as a surprise because the returns of each one varied significantly from year to year. But over the long term they gained about the same amount on an annualized basis.

Canadian bonds, as represented by the Scotia Capital Universe Bond Index, gained 9.3 per cent annually from the start of 1980 through to the end of 2014. They fared just a little bit better than the 9.2 per cent annual returns of the S&P/TSX composite index, which tracks the Canadian stock market. In the United States, the S&P 500 gained 11.8 per cent annually over the same period and the MSCI EAFE Index of international stocks advanced 9.5 per cent annually. (All figures are presented in Canadian dollar terms.)

An investor who placed one-quarter of their portfolio in each index at the start of 1980 and held on would have gained 10.2 per cent annually over the following 35 years.

But their portfolio shifted over that time period. By the end of 2014, more than 40 per cent of it was invested in U.S. stocks and the rest was split roughly equally between the other asset classes.

On the other hand, those who diligently rebalanced their portfolio annually would have gained 10.4 per cent per year. They outperformed the buy-and-hold approach by about 0.2 of a percentage point annually while keeping their asset allocation in line at the same time.

In addition, the buy-and-hold investor suffered from a slightly more volatile ride over the years. Their portfolio was about 8 per cent more volatile (as measured by the standard deviation of its annual returns) than the rebalanced portfolio.

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But it is important to point out that the relative merits of each approach change depending on the time period considered. In some cases, the return benefit of rebalancing shrinks and it may even become a negative instead.

To my mind, the benefits of rebalancing are fairly modest and investors are likely to gain more by tackling larger issues. For instance, moving from a portfolio composed of mediocre actively manged funds to one filled with good low-cost index funds will likely result in a much more sizable performance boost over the long term.

In addition, I've not factored in the trading costs and taxes associated with rebalancing, which can swamp its modest benefits.

As a result, rebalancing a well-constructed portfolio more than once a year seems like a wasted effort to me. Instead, it's better for most investors to think about rebalancing every few years or when their portfolio's asset mix becomes very skewed.

I also favour using any additions to, or withdrawals from, a portfolio to help return it to balance. For instance, those who are in the wealth-accumulation phase of life can add new cash to the skimpiest parts of their portfolios. Alternately, those taking money out can grab it from oversized holdings. In this way it's possible to whip lopsided portfolios back into shape over time.

If your asset allocation is a little askew, relax. Minor variations probably won't make a big difference to your overall results. Instead, slowly tune up your portfolio in a cost-effective manner.

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