40. Does Asset Allocation really work?

you have money to invest, seeing that the market is now battered by news of a mutated variant of covid-19 (omicron) the current level looks promising to you as you have a 10-year time horizon, should you placed it 100% of your money in an equity fund?

market volatility will persist over the short-term and the best approach to mitigate much of this volatility is to allocate 60/40 between equities and bonds

allocating it in the beginning is just the first step, regular re-balancing at least every six months going forward should be done to make this work 

let's say after six months:

the idea of re-balancing is to bring back the allocation to 60/40, the illustration below shows how it may improve our final returns

this is tedious you might say, this is a lot of work to do as considering it has to be done every 6 months in the next ten years

is there any benefit to this? lots of academic studies have shown that regular re-balancing would actually increase final return and lessen investment risk