# Rebalancing Harvests Volatility

_Systematic Investing . 2026-05-07 . By Tanmay Kurtkoti. Educational, illustrative, not advice._

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Friend pulled his CAS out over coffee on Saturday. He had been upset about his five-fund SIP underperforming the index by a margin he could not explain. Buy and hold, he said. Equal weight, five funds, started in 2021. Should have been the boring sensible thing.

I made him add the columns up.

The actual split today is 38, 17, 16, 15, 14. One fund had quietly become more than a third of the book on its own. Two years without a trade. The weights traded for him.

This is the part of buy and hold nobody puts in the brochure. You can pick a perfect equal-weight portfolio on day one and the market will resize it on you while you are not looking. The diversification is on the start statement. Not the current one.

So I drew him the napkin version.

Two assets, fifty fifty, total one hundred rupees. Asset A drops thirty percent, Asset B rises thirty percent. Total still one hundred. Both assets then revert to where they started. Buy and hold path ends at one hundred. Flat round trip, zero return.

Now run the same swing with a rebalance at the high. Sell fifteen rupees of B at the peak, buy fifteen rupees of A at the trough. When both prices revert, the portfolio ends at one hundred and ten. Same start prices. Same end prices. Ten percent harvested by the act of rebalancing.

The textbook name for this is a volatility harvest. The bigger the swings between holdings and the more they mean-revert, the bigger the harvest. The math is not opinion. It falls out of the geometry of compounding.

Cadence decides how much of it you actually capture. Short cadence catches mean reversion before drift sets. Long cadence lets it ferment. Annual is buy and hope. Trade off is small turnover cost in exchange for the harvest plus a portfolio that still looks like the rule sheet you bought.

Three rules I left him with over the second coffee.

One. Rebalancing is not churn. It is the discipline that keeps the portfolio you bought from being eaten by the portfolio you accidentally became.

Two. Without it you are a momentum trader by default. Just a slow one.

Three. If your weights have not been touched in two years, you do not own the portfolio you started with.

https://rupeecase.com/learn/

(Carousel attached. Four cards. Drift, ledger, harvest, lesson.)
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