Strategy Intermediate: Rebalancing Your Portfolio

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
What's the primary reason to rebalance?
Choose wisely. There is only one correct answer.
To control your portfolio's volatility. By rebalancing, you ensure that your portfolio isn't overly dependent on the success or failure of one investment, asset class, or style.
2.
Rebalancing often requires you to _______.
Choose wisely. There is only one correct answer.
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.
3.
If you want to save on taxes while rebalancing your portfolio, you would do best by selling investments held in _______ accounts.
Choose wisely. There is only one correct answer.
Tax-deferred. You will rack up much less in capital gains this way.
4.
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?
Choose wisely. There is only one correct answer.
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.
5.
Selling some winning investments earlier than you'd like and then buying new investments has some advantages. These advantages include which of the following?
Choose wisely. There is only one correct answer.
All of the above. All of these are reasons to sell off winning investments and thus rebalance your portfolio.