In terms of financial advice, "buy low; sell high" is a myth. It would be similar to telling someone asking for directions, "go to your destination; then stop."
"Buy low" is bad advice on its own, because the market could always go lower. Whether you are waiting for the markets to decline to its lowest possible point or even just a little bit lower beyond its lowest point, you have nowhere to start.
"Sell high" could be even worse advice because (in addition to the same logic that the markets can always go higher), once you lock in a profit, "opportunity costs" begin accumulating, starting with the alternative return that the money would have earned if it were kept in the initial investment. For example, if you opened an index mutual fund in your 20s with the intention of selling half when your initial investment has doubled, then where does that new money go? Selling a stock to keep the money in a stable value option is only a smart move if the index declined, so earning nothing would higher than a loss. But if the index fund money doubled after 15 years and you were another 25 years away from retirement, then the expected return of the index fund would be considerably higher than the return on a stable value option over that period of time. Again, the investor has not been given useful instructions when told to sell high.
While "buy low; sell high" is a catchy mantra, it provides no ready-to-use advice. The discipline of rebalancing is the how-to for the "buy low; sell high" advice to work. "When are stocks low?" "How do I know if bonds are high?" "What if everything is down at the same time?" Creating an asset allocation to use as a guideline or a road map would provide answers to each of those questions (or even bypass them altogether) with more clear instructions than "go to your destination; then stop." Rebalancing at set periods ensures both buying low and selling high.
Foremost, it removes the biggest pitfall for novice investors: emotion! Regardless what happens in the market in between, do nothing until the set rebalance date. Only one of two scenarios is possible as a result. If the market declined and recovered within a year (using annual reallocations as an example), then there would be no need to get out in the first place. If the market declined and stayed lower for more than a year, then prices will still be lower on the planned reallocation date(s) and, as an added benefit, it will have given inversely related investments time to increase in value as well.
Personally, I have rebalanced my old 401(k) quarterly since February 2009, as seen in my Full Motley entries. Honestly, I have found that quarterly rebalancing is a bit too often (because the amounts moved are often *very* low), but it is the discipline that I developed and the intervals are close enough together that I rarely forget. If I were advising a close friend who did not care about investing, then I would suggest semi-annually, or at very least annually. Anyone born in August, September or October could use their birthdays and the day they start or file their taxes as the dates to rebalance. Otherwise, either day works for annual rebalancing (and then, to rebalance semi-annually, again six months from the chosen date).
Like many other professions, personal finance has its own lexicon, and "buy low; sell high" was an attempt to simplify the best advice into layman's terms. Unfortunately, it falls a bit short in terms of practical application. In reality, the intended advice was "allocate and rebalance."
