Horseshoes and Hand Grenades

“Have no fear of perfection, you’ll never reach it.”
– Salvador Dali

Whoever sold you on the idea that precision or perfection were necessary in investing was probably selling you something else entirely. Because anyone who’s spent enough time in the industry knows that a) precision doesn’t exist in a biological system like a market, only in a mechanical system and b) even the best managers know better than to get caught up in a grail quest for the ideal.

When investing toward a goal that’s somewhere between ten and thirty years out, it’s nice to have metrics telling you you’re on track along the way, but it’s dangerous to obsess over those metrics and allow them to lead you toward irrational behavior when they don’t say what you want them to.

In my practice, anytime we’re updating a client on a financial plan and can tell them they’re above an 80% statistical likelihood of hitting their stated objectives, we’re happy. Clients with certain personality types may wish they were hearing 85% or 90%, of course – which is totally understandable – but it’s our job to help them get past that sometimes.

In portfolio management, the same desire for perfection can quickly add unnecessary complexity to an already complex undertaking if we’re not careful. In today’s world of near-unlimited investment choice in the marketplace, quantitative software at our fingertips and exponentially more analytic horsepower, the temptation to twist the dials and tweak the knobs is more seductive than ever. Again, it becomes important to remind ourselves that every decision, even a decision not to make a decision, could have unexpected consequences – on costs, performance, volatility or all three. Therefore, decisions to do something ought to require a great deal more weight behind them than decisions to abstain from action.

We’re blessed to have a highly educated, highly engaged clientele and many of the households we serve come from the technology and engineering fields. One of the more frequent questions we get is about the actions we do take with respect to rebalancing our asset allocation strategies. We’re often asked about how we decide on the timing, threshold, tax consequences, transactional costs and other considerations around our systematic process. These are all great questions and we always strive for transparency when explaining our rebalancing optimization techniques and procedures. The truth is, the term optimized is perfection‘s first cousin. Unfortunately, there’s no such thing as either in actual practice – there is only ever going to be “close enough.”

Engineers hate “close enough” but they gradually become more comfortable with the concept when we walk them through all of the variables (and the variability of variables) that prevent the sort of precision  in the realm of capital markets they’ve been trained to seek out elsewhere.

Those desperate for precision are guaranteed to be disappointed.

But don’t get frustrated yet – I’ve got good news for you…

It turns out that a perfectly optimized rebalancing process is absolutely unnecessary for long-term success. Thanks to research from Vanguard into the most popular rebalancing methods in use today, we know that the existence of a plan is paramount to the actual tactics within the plan – so long as there’s consistency throughout. What trumps the rebalance methodology itself is the mere fact that someone sticks to a rebalance plan, period.

Here’s Vanguard’s Fran Kinniry explaining the importance of constancy over exactitude:

Our 2010 study looked at the performance of portfolios that used rebalancing strategies based on various time intervals, allocation thresholds, and combinations of both. The time-based portfolios were rebalanced monthly, quarterly, or annually, while the threshold categories were rebalanced when allocations deviated by a predetermined minimum (in this case 1%, 5%, or 10%) from their target allocations. The “time-and-threshold” strategy combined periodic monitoring with predetermined minimum rebalancing thresholds.

Which strategy worked best? We found that no one approach produced significantly superior results over another. However, all strategies resulted in more favorable risk-adjusted portfolio returns when compared with returns for portfolios that were never rebalanced.

Whether the decision is to rebalance on a periodic basis or when allocations hit a certain threshold, or a combination of both methods, the key is to stick to the strategy, not to rebalance in response to market events. Furthermore, portfolio monitoring for the purpose of rebalancing should be done on a specific anniversary date.


Josh here – as you can see from the above table, virtually all of the portfolios ended up in the same place eighty-three years later, with some minor differences in volatility, turnover ratios and trading events.

Now of course, in real life nobody has an eighty year time horizon except endowments, foundations and other institutions that are meant to grow capital in perpetuity. That said, there are merits to each of these approaches for a regular person with a normal time horizon who is seeking to avoid being caught up in asset bubbles. Rebalancing – as opposed to market timing – is the most rational way to accomplish this.

But rebalance how?

As you can see above, the right approach to rebalancing may make a difference, but probably not a huge one given enough time. What’s more important is the act itself – and the commitment to carrying it out regardless of what the chimpanzees are screaming about each day in the headlines.

My suggestion for those striving for perfection is to do so outside of the investing arena. As with horseshoes and hand grenades, in planning and portfolio management, close enough is probably going to do the trick.


More about our practice here:

Ritholtz Wealth Management


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. glenn commented on Nov 25



  2. Virgil commented on Nov 28


    thank you!!

  3. Jim commented on Feb 12



  4. bitcoin era review 2020 commented on Sep 28

    … [Trackback]

    […] Read More on that Topic: […]

  5. 토토 commented on Oct 06

    … [Trackback]

    […] There you will find 71998 additional Info on that Topic: […]

  6. DevOps Consulting commented on Nov 02

    … [Trackback]

    […] Read More on on that Topic: […]

  7. 주소찾기 commented on Nov 09

    … [Trackback]

    […] Read More Info here on that Topic: […]

  8. td canada easyweb login commented on Nov 26

    … [Trackback]

    […] Information to that Topic: […]

  9. 안전공원 commented on Dec 25

    … [Trackback]

    […] Info on that Topic: […]

  10. diamond painting kits commented on Dec 29

    … [Trackback]

    […] Read More here to that Topic: […]

  11. Whirlpool JT 479 IX manuals commented on Jan 21

    … [Trackback]

    […] Information to that Topic: […]

  12. blog link commented on Feb 03

    … [Trackback]

    […] Info to that Topic: […]