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Rebalancing — purpose and behavioral role. Rebalancing restores a portfolio to a target asset allocation after market movements cause drift (e.g., equities growing to 80% when target is 70%). The main purpose is to maintain your chosen risk profile and discipline the sell-high/buy-low behavior: by trimming winners and topping up laggards you periodically lock in gains and buy into assets at relatively lower prices. Rebalancing is primarily a risk-management and portfolio-construction tool, not a guaranteed performance enhancer.
Practical rebalancing rules and trade-offs. Common approaches: calendar-based (annual, semiannual) or threshold-based (rebalance when an allocation deviates by X%). In taxable accounts, prefer threshold triggers to minimize tax events; in tax-advantaged accounts you can use calendar rules more freely. Consider trading costs and bid-ask spreads for small accounts; you may aggregate contributions to rebalance cost-effectively. Finally, document a simple plan and automate when possible: automating rebalancing removes emotional decision-making and keeps the portfolio aligned with long-term goals.
By Quiz Coins
Trying to time the market is difficult; historically, consistently staying invested has outperformed frequent market timing attempts.
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