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1.
What is rebalancing?
Restoring your portfolio to its original risk level by buying and selling funds until you reach your original allocation. Once you've built your portfolio, you need to monitor it and occasionally rebalance.
2.
What might cause the need to rebalance?
Both market activity and a change in your asset allocation parameters. Some asset classes will grow faster than others and may become a bigger part of your portfolio than you want. Also, as most investors age, their asset-allocation parameters get more conservative. Both changes may require portfolio rebalancing.
3.
Which of the following is not a tax-efficient way to restore balance to your portfolio?
Rebalance your taxable accounts by selling your winning holdings. Paying attention to tax efficiency is an important part of the rebalancing process. Focus rebalancing efforts on your tax-sheltered accounts. If you must rebalance within your taxable accounts, consider doing so by adding to laggard holdings rather than selling.
4.
As a general rule, if you are rebalancing your portfolio, you are aiming to _______.
Reach your original asset allocation. Rebalancing is normally about getting your portfolio back to its original asset allocation. Some investors, however, might rebalance at times for other reasons.
5.
Which is the most important part of your portfolio to rebalance?
Your asset allocation of stocks, bonds, and cash. Studies have found that investors obtain the most risk control from rebalancing by asset class.
