Strategy Intermediate: Rebalancing Your Portfolio

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1.
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.
2.
If you want to save on taxes while rebalancing your portfolio, _______.
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Use new money to rebalance. Rebalancing less frequently will allow you to avoid taxes, as will selling securities from tax-deferred accounts BEFORE you sell securities from taxable accounts.
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?
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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.
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Tax-deferred. You will rack up much less in capital gains this way.
5.
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.