Rebalancing
The hypothetical portfolio below begins in Year 1 with a target asset allocation model that divides the investment dollars into four asset classes, each representing 25 percent of the total. By Year 3 the variation of returns of the investments in the four asset classes has shifted the asset allocation away from the original target. The portfolio may now have volatility characteristics that are out of line with your risk profile. Rebalancing is the remedy.
Rebalancing is the process of realigning the weighting of your portfolio's asset classes to reflect your target investor profile.
Tax Exempt Portfolio
Problem: Unbalanced Portfolio An equally weighted portfolio may become unbalanced over time, creating a portfolio mix that no longer reflects your target investor portfolio.
Solution: Rebalancing Rebalancing involves selling part of the appreciating asset classes and shifting these proceeds to the declining asset classes to bring the portfolio back to the targeted asset allocation mix.
