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Portfolio rebalancing helps you keep your investments in line with your investment strategy. The idea behind rebalancing is to reduce risks created by the build up of an inconsistent sum of money in any given market sector. Portfolio rebalancing is not an attempt to time the market, but rather a timely reassessment and modification of an investor's target goals.
Rebalancing is a vital part of investment strategy. There can be no asset allocation target without a stated pledge to preserve the target. It is necessary to achieve the value added benefits of diversification. Periodically putting your investments back in
order by shifting money among asset classes is a necessary chore for investors who devise an asset-allocation strategy--whether the market goes up or down. The primary purpose of rebalancing is to maintain a consistent risk profile. It also provides a regular plan of action. Rebalancing accomplishes the reduction of assets that performed best (or worst) and the reinvestment of those proceeds into other assets to bring the portfolio to its original balance.
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