Re-balancing: Right way

How often does one‘re-balance’? Re-balancing refers to the fact that stock and bond markets go up and down and change the % of the allocations you started with. The idea is for example that if small caps do well one year, the % of small caps in your portfolio will exceed the target you set as a goal. Everyone knows by now that rather than the performance of individual stocks/bonds it is the asset allocation you set that is responsible for 90% of the results. Vanguard looked at monthly, quarterly and annual re-balancing from 1926 to 2009 and noted similar returns. So, the idea of re-balancing quarterly or semi-annually may be too often a lot of experts opine. The problem is if you never re-balance, you will probably come out with the highest returns but you take much more risk in terms of huge swings. Also, if you re-balance too often you of course pay trading fees and taxes (the latter if the account is a taxable one). Other options are: direct dividends and capital gains from over weighted accounts to under-weighted accounts; transferring or exchanging cash between asset accounts; or simply adding new money to the under weighted accounts. Some people use their birthday each year to re-balance. 
For detailed information see "The Smarter Physician Volume 2" .