Bogle did extensive analysis on the impact of rebalancing (between stocks and bonds) on historical portfolio returns, and decided that it does not meaningfully increase your returns.
His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target?
Rebalancing will also generally generate capital gains in taxable accounts. If you're aiming for 60/40, but your stocks are now up and it's 70/30, selling those stocks to bring it back to 60/40 again means you will pay capital gains on whatever you sell.
The data shows you can get better returns by rebalancing weekly, but this is really too much for most investors, unless you use something like M1 where rebalancing is a single button click.
Of course, there's more complexity to this question. The above mostly applies to the accumulation phase. To someone in, or close to, retirement, for example, having a portfolio that's drifted too far into stocks can be a risk.
"His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target?"
Because of reversion to the mean. Rebalancing should insulate you from weird outcomes like 90% of your money being in GameStop stock then crashing to nothing a week later.
Pretty much every professional fund of fund rebalances, including those by the company Bogle founded. This is weird advice.
Another way to phrase the reply you have already had: because these assets are martingale.
In other words, to the extent good historic performance says anything about future performance, that effect is already priced in. This means you shouldn't hold on to a historically good investment just for that reason -- it's just as likely to be a loser going forward.
If you determined that the amount of risk you're willing to put into equity is 60 %, the only thing that happens if you let it drift up to 70 % is that you increase your exposure to equity higher than you originally intended.
Maybe you have good reason to do that, but historic good performance is not that reason.
His main argument was rebalancing effectively switches high-returning assets for lower-returning ones. If one part of your portfolio did better than another part, why would you get rid of it just to bring the asset allocation back to your target?
Rebalancing will also generally generate capital gains in taxable accounts. If you're aiming for 60/40, but your stocks are now up and it's 70/30, selling those stocks to bring it back to 60/40 again means you will pay capital gains on whatever you sell.
The data shows you can get better returns by rebalancing weekly, but this is really too much for most investors, unless you use something like M1 where rebalancing is a single button click.
Of course, there's more complexity to this question. The above mostly applies to the accumulation phase. To someone in, or close to, retirement, for example, having a portfolio that's drifted too far into stocks can be a risk.