Three policies with different triggers
A calendar policy examines or restores an allocation at specified dates. A threshold policy acts when a defined deviation is breached. A hybrid might review at fixed intervals but trade only outside a band. Review frequency and execution frequency are separate choices: checking daily does not necessarily require trading daily.
Write the trigger in unambiguous units
Suppose a 60/40 portfolio is worth 10,000 and its weights become 66/34. The first asset is six percentage points above its target, or 10% above it in relative terms. A rule using a five-percentage-point band would trigger. A rule using a 15% relative band would not. These settings cannot be compared merely by choosing the smaller number.
Specify the destination after a trigger
Ignoring costs, restoring the example to 60/40 requires selling 600 of the first holding and buying 600 of the second. Trading only to the band boundary requires a different amount. State which rule applies, how costs affect portfolio value and whether other assets must also be adjusted.
A fair comparison protocol
- Use the same starting assets, quantities, cash flows and observation dates.
- Define when information becomes available and when orders execute.
- Apply equivalent fees, spreads, tax treatment and order restrictions.
- Record allocation drift, turnover, drawdown and ending wealth.
- Test additional periods after selecting parameters.
Calendar rules can trade despite little drift. Threshold rules can trigger repeatedly in a volatile path. Either can outperform the other under selected prices. The previous universal performance claim has been withdrawn; no strategy backtest is presented here.
Decide what would make the policy unsuitable
A band can be operationally impractical when minimum trade sizes exceed the intended adjustment. A schedule can be too infrequent for a binding exposure limit. Tax and liquidity costs can outweigh a small adjustment. Record the constraint before choosing a parameter rather than selecting one solely because a historical return looks attractive.
Sources and scope
References support the stated definitions or research context. The worked examples on this page use invented inputs and do not reproduce a market study. Source checks: 16 October 2026.
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