Asset allocation - taxable portfolio
A taxable portfolio should be less frequently rebalanced. Due to:
1. Frequent rebalancing leads to realizing gains, hence you pay more in taxes (higher taxable income)
2. A tighter corridor involve higher transaction costs, therefore it is better to have a wider range/corridor. Also, due to the lower volatility after-tax, you need larger movements to change the volatility/risk level.
Why would you want to increase the risk level in this case? Because higher risk leads to better returns, OK, but is there any kind of aspect I´m missing here?
Many thanks, guys.
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