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.
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.
Rebalancing your portfolio is ultimately meant to keep it in synch with your investment goals.
Choose wisely. There is only one correct answer.
True. As it grows out of synch with your goals over time, you need to rebalance it to keep it in line.
5.
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.