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.
