Response from: R. Stavros Bezas

While it may seem like lunacy by not doing it you are taking are far too much risk for reward. By rebalancing out of your 'winners' and buying into your 'losers' you are minimizing the effect of the crash you speak of, which the greater allocation you have in those sectors/funds the more risk you are taking on unnecessarily. The reason why you want to buy into the 'losers' is that when they do rally and come back you now have that much more of it to impact your overall return. This applies to all asset classes and not the bond funds. We are seeing an over allocation in our clients' portfolios to fixed income due to the recent market movements and will be rebalancing them out of the total bond market and buying equity! Remember, asset allocation and sector location determine your return something like 94% while individual asset returns make up the remainder. (please don't hold me to those values, I can't back them up at this moment)

Response from: Carey

Rebalancing locks in your gains from the "risky" part, and lowers your cost-average for the "safe" part. It's an especially good idea in your situation - those risky stocks could lose all their gains next year, but if you sell off the fat, you can put that money into your "tortoises". You know, the "slow and steady wins the race" types. Those large caps will make money in the long term, and you're putting more money in while they're low. What you're doing when you reallocate your portfolio basically boils down to "buy low, sell high". Ever hear of it?

Response from: GURUPERF

As the now-(early)-retired manager of the investment performance group of a major money manager, asset allocation is something I've researched fairly extensively over the years. To summarize my thoughts from research results, rebalancing semi-annually when allocation percentages become 5% off target seems to moderately increase return while significantly lowering volatility. (e.g. a 25% target allocation would be reduced when it reaches 30%, a 10% allocation at 15%)
The selection of beginning of May, beginning of November fits well with some trends "Sell in May and go away" and December tax selling. By reviewing the portfolio twice a year, you lower transaction costs over a rigid 5% at any time rule which can cause buying and selling on short-term moves (not to mention the time spent monitoring the portfolio). As for those who say just let your winners run forever, please remember the old Wall Street saying: "Bulls make money, Bears make money, Pigs get slaughtered" Just my opinion - past performance does not imply or guarantee future results.