Choose wisely. There is only one correct answer to each question.
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1.
Which statement is false?
Rebalancing doesn't allow you to benefit from a change in the market's favorites. Trimming back on a winner may have its tax consequences, but it allows you to reap the rewards of diversification and position your portfolio to benefit from a change in the market's favorites.
2.
If you have both small-company stocks and large-company stocks in your portfolio, which of them is more likely to have grown in proportion over time, assuming you haven't rebalanced during this time?
Small-company stocks. Since small-company stocks have more growth potential, they likely will have grown more, thus necessitating rebalancing if you want to maintain the volatility level of your portfolio.
3.
Selling some winning investments earlier than you'd like and then buying new investments has some advantages. These advantages include which of the following?
All of the above. All of these are reasons to sell off winning investments and thus rebalance your portfolio.
4.
If you want to save on taxes while rebalancing your portfolio, you would do best by selling investments held in _______ accounts.
Tax-deferred. You will rack up much less in capital gains this way.
5.
Rebalancing your portfolio is ultimately meant to keep it in synch with your investment goals.
True. As it grows out of synch with your goals over time, you need to rebalance it to keep it in line.
