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Balancing Act

Rebalancing

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Step 12: Invest & Relax

Periodic portfolio rebalancing is an important strategy for risk maintenance, allowing you to adjust your current allocation back to your target allocation. Rebalancing most frequently involves selling shares that have appreciated significantly and buying more of those that have grown more slowly, ensuring a consistent level of risk exposure in a portfolio. For further information on rebalancing, including frequencies and formulas, see ifa.com/rb. Figure 12-1 reflects the mechanism of maintaining the discipline of rebalancing. It seems counterintuitive to sell off a portion of an investment that has outperformed others in order to buy one that has underperformed. However, out-ofbalance portfolios with asset classes that have grown beyond their target allocations take on inappropriate risk exposures.

Figure 12-1

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