Strategy Intermediate: Rebalancing Your Portfolio

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1.
What's the primary reason to rebalance?
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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.
Which statement is false?
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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.
3.
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.
4.
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.
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.