11. Portfolio rebalancing

Rebalancing Your Portfolio

Portfolio rebalancing is the process of bringing your different asset classes (stocks, bonds, and cash) back into proper relationship following a significant change in the value of one or more of them. You should monitor your investments and normally rebalance your portfolio about once a year to return your investments to their proper balance when they no longer conform to your investment plan.

Suppose that you begin an investment program with a portfolio having an asset allocation of 40% bonds, 25% equities, and 35% cash investments.

One year later, you find that some investments have performed better than others. After a year, the portfolio now consists of 40% bonds, 40% equities, and 20% cash investments.

To rebalance this portfolio back to its original asset allocation, you should sell some of your and use the proceeds to purchase additional .