The primary reason for an IA to rebalance a client’s portfolio is to:

By Investopedia AAA
A:

A. ensure the portfolio matches the asset allocation chosen for the client's risk tolerance and objectives.
B. increase portfolio diversification.



C. sell assets that are underperforming.



D. benefit from market timing.




Answer: A



Rebalancing involves selling securities that have outperformed and investing the proceeds into the asset classes that have underperformed. Therefore, "C" is incorrect. The process allows the investor to "sell high" and "buy low" in order to move the portfolio back to the target percentages. These percentages are set to best meet the investor's investment objectives, time horizon and risk tolerance.



RELATED FAQS

  1. For investors, what are the alternatives to owning physical gold?

    Learn some of the primary alternate ways that someone can invest in the gold market besides simply purchasing physical gold ...
  2. What does standard deviation measure in a portfolio?

    Dig deeper into the investment uses of, and mathematical principles behind, standard deviation as a measurement of portfolio ...
  3. How can I use alpha in conjunction with the Treynor Ratio?

    Learn about alpha and the Treynor ratio and how these metrics are used to assess investment strategy by comparing portfolio ...
  4. How often should I be checking the NAV of my mutual fund shares?

    Learn why the net asset value (NAV) of a mutual fund should be monitored regularly and understand the reasons why you should ...
RELATED TERMS
  1. Smart Beta

    Investment strategies that emphasize the use of alternative weighting ...
  2. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
  3. Account Minimum

    The minimum balance required to be maintained in an investment ...
  4. Capital Growth

    The increase in value of an asset or investment over time. It ...
  5. Absolute Percentage Growth

    An increase in the value of an asset or account expressed in ...
  6. Gold IRA

    Definition of Gold IRA

You May Also Like

Related Articles
  1. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

  2. Mutual Funds & ETFs

    4 Tax-Free Muni Bond ETFs to Consider

  3. Chart Advisor

    This Low-Volatility ETF Deserves Your ...

  4. Trading Strategies

    Retirement Investing with BlackRock's ...

  5. Mutual Funds & ETFs

    A Look at Blackrock's iShares ETFs

Trading Center