Rick Ferri doesn't try to time markets. Instead, he relies on taking a buy-and-hold approach.

But that doesn't mean the Troy, Mich.-based advisor sticks to a completely static portfolio. He's a big believer in taking advantage of the impact a disciplined and consistent rebalancing strategy can bring to a diversified portfolio over time.

By refraining from buying high and selling low, Ferri says his clients can better control risks and maximize their long-term investment prospects.

"We assign bands, or parameters, around our asset classes for rebalancing purposes," Ferri said. "People call it opportunistic rebalancing, which is really a bad name that infers we're making market predictions—which we definitely aren't."

Going back to 1950, Ferri sorted through monthly data pertaining to different asset classes. Then, he tried hundreds of unique scenarios comparing different levels to rebalance around. "There's no optimum way to do this, but the percentages we came up with work well in all of the five decades we compared," Ferri said.

Along with his staff at Portfolio Solutions LLC, he has developed a sliding scale for setting bandwidths around asset classes based on risk levels. If a client has less risk, the rebalancing bands are tightened. If a client has a 50% equity target for their overall portfolio, for example, and the stock portion grows to more than 54%, Portfolio Solutions will take a hard look at rebalancing, according to Ferri.

For someone with an 80% equities allocation, he says the portfolio would need to go up to close to 87% equities to consider rebalancing.

"But you've got to look at the reasons behind those changes," Ferri said. "We review what's going on—you can't just automatically rebalance portfolios based on some set number."

Look Behind The Curtain

Ferri has written five books on index funds and exchange-traded funds. His research has been published by IndexUniverse.com. And he has written articles on various topics for the site as well. Ferri's work has also been featured in the Journal of Indexes and other leading industry magazines in the past nine years.

"Our theme is low-cost investing," he said. "All of the books I've written are generally about how different asset classes and types of indexes can work together in a portfolio."

In his book, "All About Asset Allocation," he advises do-it-yourself investors to rebalance once a year. "It's not wise to look at your portfolio all of the time and try to figure out when to rebalance. The methodology we use for rebalancing is overseen by a professional staff and reviewed on a weekly basis. It's very difficult for individuals who don't do this full time to keep up with that sort of an involved process and stay on track," Ferri said.

His studies show that rebalancing annually can gain 80% of the benefits advanced by modern portfolio theory. Ferri believes that using his firm's research into setting allocation bands can help clients to pick up most of the rest. "Our methodology for rebalancing should cover our management fees, which average 0.25% per year," he added.

Ferri prides himself on doing his own number crunching and research. "I've got access to the same data everyone else uses," Ferri said. "But I want to run it myself. I can see how other people are coming to certain conclusions. But I want to make those calls for our clients ourselves."

After serving as a fighter pilot in the U.S. Marines Corp. in 1988 at age 30, Ferri left active duty and decided to use his business degree from college to work for a large brokerage house. He landed a job as a broker at Kidder, Peabody & Co., which eventually became part of UBS AG. He advanced to managing bond portfolios and investment management consulting. That work included interviewing money managers and analyzing strategies and styles used at the firm.

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