Strategy Intermediate: Rebalancing Your Portfolio

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

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1.
If you have both small-company stocks and large-company stocks in your portfolio, which of them is more likely to have grown in proportion over time, assuming you haven't rebalanced during this time?
Choose wisely. There is only one correct answer.
Small-company stocks. Since small-company stocks have more growth potential, they likely will have grown more, thus necessitating rebalancing if you want to maintain the volatility level of your portfolio.
2.
Which statement is false?
Choose wisely. There is only one correct answer.
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.
If you want to save on taxes while rebalancing your portfolio, _______.
Choose wisely. There is only one correct answer.
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.
Imagine you're investing for your retirement via a 401(k) plan and an IRA. How should you rebalance these accounts?
Choose wisely. There is only one correct answer.
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.
5.
Why does it become necessary to periodically rebalance your portfolio?
Choose wisely. There is only one correct answer.
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.