Strategy Intermediate: Rebalancing Your Portfolio

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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.
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.
3.
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.
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.
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.