Skip to content
Resources/Weekly Insights
Volume 12, Edition 33 | November 27 - December 1, 2023

Rebalancing: It Pays to be Opportunistic

Doug Walters, CFA
The holy grail for most investors is to effectively “sell high and buy low.” This week, as we continue our series on our guiding principles, we will discuss how rebalancing can assist in this noble endeavor.

Contributed by Doug Walters, David Lemire, Max Berkovich, Eh Ka Paw

The holy grail for most investors is to effectively “sell high and buy low.” This week, as we continue our series on our guiding principles, we will discuss how rebalancing can assist in this noble endeavor. We prefer the “Opportunistic” version of rebalancing, which the evidence shows is a better tool to capitalize on the ups and downs of the market systematically.

Rebalancing comes in many forms, most of which add value. The most common is calendar-based rebalancing. Here, an investment manager will rebalance the entire portfolio back to its targets at set points throughout the year, often quarterly. If you have a 401K with your employer, you will likely see this option in there (use it!).

There’s a Better Way

But there is a better, more sophisticated, and nuanced way to rebalance, called “Opportunistic Rebalancing.” We put this method to work on our managed strategies. What makes it different? Rather than rebalance blindly based on the calendar, you rebalance strategically based on market moves. In our case, we look weekly for individual securities that have moved too far (we generally use 20%) and buy or sell them to bring them back in line. We don’t rebalance the whole portfolio, just the outliers.

For example, let’s say US large-cap stocks rally and are now 20% too high versus your target. You would sell US large-cap back to target and then buy whatever securities fell the most. Systematically selling high and buying low! And just because you are looking often does not mean you are trading often. If everything is in line, no trade occurs.

A Pandemic Example

Why is this an advantage? It may already be obvious, but a good test case was the pandemic. In the span of less than two months in the Spring of 2020, the S&P 500 fell more than 20% and then rose more than 20%. Perhaps a calendar-based rebalancing would have been lucky and captured the bottom, but it would have been just that… luck. With opportunistic rebalancing, cheap equities would have almost certainly been purchased near the bottom.

Quantifying the Advantage

How much better is opportunistic rebalancing? A study in the Journal of Financial Planning1 puts the number at about 29bps. That may not sound like much, but over 30 years on a $1 million portfolio (earning 6%) that is nearly $500,000. Small wins like this amount to big dollars over an investing career. Each one of our guiding principles is designed to deliver one of the small wins. Together, they add up to a potent recipe for long-term investing success.

Previous articles on our guiding principles can be found here:

1. “Opportunistic Rebalancing: A New Paradigm for Wealth Managers”, Gobind Daryanani CFP®, Ph.D, Journal of Financial Planning, January 2008

Gain for the Russell 3000 in November

Stocks rallied in November, with bond market returns positive as well.

Headline of the Week

Santa Claus Came to Town Early

The holidays seem to be coming earlier and earlier each year, and this year is no exception. ChatGPT says the “Santa Claus” rally typically doesn’t start until the last week of December. This year, it didn’t even wait for Black Friday or even Halloween.

Rather than a calendar event starting the rally, it appears that a yield threshold popped the cork. The 10-Year Treasury briefly touched 5%, which enticed many to attempt to lock in higher rates. The resulting decline in yields (recently at 4.2%) flipped the script for the stock markets, and the Santa sightings were on.

For those fortunate to have hung their stockings early, they were filled with lots of nice treats in November. One of the bigger gifts was from US equity markets, with the Russell 3000 posting an over 9% gain on the month. The international present was ever so slightly smaller. And even bond markets chipped in with a near 5% gain. While mega-cap tech helped, when we unpacked the US present, mid-cap growth led the way. And while value still lagged (a bit), small-cap also delivered some early holiday cheer.

We are grateful for these early gifts, and we hope the Fed delivers something nice at its next meeting (continued pause in rate hikes). However, we don’t want to get too greedy and expect a rate cut gift next year (unless it’s needed to facilitate that greatest gift of all – the soft landing).

The Week Ahead

After a phenomenal November for stocks and bonds, the first week of December will bring a jobs report. Markets are awaiting a Goldilocks report on Friday to keep the party going.

All work and no play…

The non-farm payroll report on Friday isn’t the only jobs-related data out. ADP Employment, Challenger job cuts report, and a job openings and labor turnover report (JOLTS) precede it.

  • Being too strong or weak is not good; matching consensus estimates of 175,000 jobs added to the economy in November would be nice.
  • October added 150,000 jobs, so a significant revision to that report would also be unwelcomed.
  • The unemployment rate of 3.9% is expected to hold, but the most important number should be wage growth.
  • Wages continuing to accelerate is a cause for concern, as it tends to fuel further inflation.
  • The previous JOLTS report indicated an elevated job openings level of 9.55 million, tightening that a bit should be a positive for the battle versus inflation.
  • Keeping an eye on Friday’s University of Michigan Consumer Sentiment Index is also important.

Tuning the noise out!

Australian and Canadian central banks have rate decisions next week. The European Union and Japan have yet another revision to their Gross Domestic Products (GDP), and trade data from China should all be just noise.

  • Inflation is cooling globally, making further hikes unnecessary in significant economies.
  • Bank of Canada is expected to maintain its benchmark rate at 5% as the economy has been at a standstill for three months, and inflation is cooling.
  • Reserve Bank of Australia lifted rates at its last meeting to a 12-year high of 4.35% after no hikes for five straight months.
  • Australia’s economy grew slightly but ahead of expectations, making a hike unlikely.
  • India is also due for a rate decision and is highly unlikely to move from 6.5% despite challenging inflation numbers caused by erratic food prices.
  • The final revisions to 3rd Quarter GDPs shouldn’t mean much, but a big positive revision would be big news.
  • Japan’s GDP shrank in the 3rd quarter, so the revision would need to be quite large to bring the number into the positive.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $2 billion.



Strategic Financial Services, Inc. is registered with the Securities and Exchange Commission (SEC) as an Investment Advisor. The term “registered” signifies compliance with regulatory requirements and does not imply a certain level of skill or training.

The information provided on our website, including weekly market commentaries, financial planning articles, and other educational resources, is intended solely for educational purposes. It is designed to offer insights into financial planning and investment management, aiming to enhance understanding of financial concepts, strategies, and market trends. This content should not be interpreted as personalized investment advice or a recommendation for any specific strategy, financial planning approach, or investment product. Financial decisions are deeply personal and should be made considering the individual’s specific circumstances, goals, and risk tolerance. We recommend consulting with a professional financial advisor for personalized advice.

Please be aware that Strategic Financial Services, Inc. does not provide legal or tax advice. The content on this website is not intended to be used as such or as a substitute for legal or tax advice from a licensed professional. We advise seeking guidance from qualified legal and tax advisors regarding these matters.
Investment Risks and Portfolio Management.

The discussion of any investments on this website is for illustrative purposes only and provides no guarantee that the advisor will make any investments with the same or similar characteristics as those presented. The investments identified and described herein do not represent all the investments purchased or sold for client accounts. The selection of representative investments to discuss is based on various factors, including recent company news or earnings releases.

It should not be assumed that any investments discussed were or will be profitable. All investments involve risk, including the potential loss of principal. There is no assurance that investments mentioned will remain in client accounts at the time you view this information.

When index returns are mentioned on this site, they are provided as a general indicator of market conditions and are not representative of any client’s portfolio performance. Indices are unmanaged, do not incur management fees, costs, and expenses, and cannot be invested in directly. Therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

While index returns are used as a framework to report on general market conditions, they should not be construed as an indicator of future performance of any specific investment or portfolio. Discussion of index returns is intended to provide context and insight, not to suggest that clients will achieve similar results. Each client’s portfolio is managed according to their specific investment goals and financial situation.

The opinions and any forward-looking statements expressed in the articles and videos featured in our resource center are as of the date of publication. These statements are based on current laws, regulations, market conditions, and other relevant factors, including third-party data. Given the dynamic nature of financial and regulatory environments, as well as potential changes in market conditions or economic circumstances, the information provided may become outdated or may no longer be accurate.
We rely on third-party data to form our opinions and projections, which means that these are subject to the same uncertainties that affect all data-dependent analyses. As such, we advise readers to exercise caution and not rely solely on the statements made herein for making financial decisions. It is recommended that investors consult with a professional advisor who can help assess the relevance and accuracy of the content in light of the current economic climate and personal financial situation.

Our website contains links to third-party websites as a convenience to our users. Strategic Financial Services, Inc. does not control, endorse, or guarantee the content found on such sites. We are not responsible for the accuracy, legality, or content of the external site or for that of subsequent links.
Contact the external site for answers to questions regarding its content.
The inclusion of any link does not imply our endorsement of the site, nor does it imply any association with its operators. Use of any such linked website is at the user’s own risk.

Related Resources