I've read a number of conflicting opinions on whether portfolio rebalancing is a good idea. The question of whether rebalancing is a good idea has been addressed in some questions here, too, such as this one. From the accepted answer to that question,
An asset allocation formula is useful because it provides a way to manage risk. Rebalancing preserves your asset allocation. The investment risk of a well-diversified portfolio (with a few ETFs or mutual funds in there to get a wide range of stocks, bonds, and international exposure) is mostly proportional to the asset class distribution. If you started out with half-stocks and half-bonds, and stocks surged 100% over the past few years while bonds have stayed flat, then you may be left with (say) 66% stocks and 33% bonds. Your portfolio is now more vulnerable to future stock market drops (the risk associated with stocks).
I understand and accept that by leaving your portfolio in this state would basically be "doubling down" on stocks continuing to perform well relative to bonds. However, if stocks surged 100% and bonds were flat, wouldn't rebalancing cause you to sell an asset that was performing well (stocks went up 100%) in order to buy an underperforming asset (bonds were flat)? Also, almost by definition rebalancing involves making more trades than you would have otherwise; wouldn't the additional trading fees you incurred in doing so reduce the benefits of this strategy?
This Forbes article argues that
Rebalancing... smooths out investment returns and forces you to “sell high” and “buy low.” When one piece of your portfolio goes up, you may be inclined to put more money in that area since it is clearly doing well. But for the health of your portfolio, you should fight that impulse. As the past 25-years indicate, the best thing you can do is take profits from your winners from time to time.
That article (contrary to some other articles I've seen) argues that rebalancing actually improves your returns over time.
Given that the ratio of investments is often rather arbitrary to begin with, how do I know whether I'm selling high and buying low or just obstinately sticking with a losing asset ratio? Even in the article and answer I cited, the ratios were arbitrary by the writers' own admission (60 - 40 stocks - bonds for the Forbes article, 50 - 50 stocks - bonds for the answer I refer to).