Strategy Intermediate: Rebalancing Your Portfolio

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1.
Rebalancing your portfolio is ultimately meant to keep it in synch with your investment goals.
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True. As it grows out of synch with your goals over time, you need to rebalance it to keep it in line.
2.
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.
3.
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.
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.
Imagine you're investing for your retirement via a 401(k) plan and an IRA. How should you rebalance these accounts?
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Rebalance both simultaneously, because they make up one portfolio. If these accounts are all funding one goal, they are, for all intents and purposes, part of one portfolio. So when you rebalance, rebalance across all of these accounts simultaneously.