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Portfolios 305: Rebalancing Your Portfolio

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1.
Rebalancing your portfolio involves looking at where it has become lopsided over the years. What is most likely to have happened, as a general rule, with your bond and cash investments during this time?
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They will have shrunk in proportion to stocks. Generally, stocks will have grown faster, leaving the bonds and cash in a lower proportion of your portfolio. This usually calls for some rebalancing.
2.
Why does it become necessary to periodically rebalance your portfolio?
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Some investments will naturally perform better than others and increase the risk of your portfolio. For this reason, you may need to readjust its risk level.
3.
How often should you rebalance your portfolio for best results?
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Only as needed. Normally, rebalancing should occur only when your allocation is out of balance relative to your investment goals.
4.
Selling some winning investments earlier than you'd like and then buying new investments has some advantages. These advantages include which of the following?
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All of the above. All of these are reasons to sell off winning investments and thus rebalance your portfolio.
5.
Rebalancing often requires you to _______.
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Sell some of your winners. Investments that have done well will begin to take up more of your portfolio; those that haven't done as well will take up less. To restore balance, you may need to sell some of your winners.