Rebalancing Strategies Under Market Volatility

As a portfolio manager at a wealth management firm, you are in charge of a diversified equity portfolio that follows a strategic asset allocation of 60% equities and 40% fixed income. Over the past year, the equity markets have performed exceptionally well, causing the equity portion of your portfolio to grow to 75%, while the fixed income portion has shrunk to 25%.

Additionally, recent market volatility has increased trading costs, and your client is particularly concerned about minimizing unnecessary transaction fees. Your task is to evaluate and discuss an appropriate rebalancing strategy to bring the portfolio back to its original asset allocation while also considering the impact of potential market changes and client priorities.

In your response, provide a thorough analysis of at least two rebalancing strategies, comparing them based on factors such as performance, transaction costs, and tax implications. Also, critique the potential risks associated with each strategy and recommend which approach you would implement, justifying your decision based on your analysis.