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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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Yes, you are missing a key aspect. That of the Govt. The taxes are owed to the Govt. Hence the Govt. Shares in your volatility as well. Hence after tax return volatility is also less which are to the investor. Pre Tax - whole volatility(sigma) to the investor. Post Tax- Only sigma1-t) to the investor.

Hope the above clarifies.

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Thank you for responding to all of my recent topics :)

Since gov shares your volatility, it will also share your return. So you´d want to alter an after-tax lower volatility (due to tax adjustment) portfolio by allowing a wider range/larger movements, which will increase your volatility, and your return. Gov shares less in your risk in this case, hence more return stays with the investor. I hope I got it right. Thank you very much