Rebalancing Strategies for Portfolio Management

Easy Trading & Rebalancing Rebalancing Strategies

Maria is a portfolio manager for a diversified investment fund. She aims to maintain the target asset allocation of the fund, which is currently set at 60% equities and 40% fixed income. Due to recent market performance, the equity portion has risen to 70%, while fixed income has fallen to 30%. Maria is evaluating different rebalancing strategies to realign the portfolio with its target allocation.

Which rebalancing strategy should Maria consider that most effectively reduces portfolio risk while aligning with her investment objectives?

Rebalance the portfolio by selling equities and buying fixed income proportionally based on their current values.

Rebalance the portfolio only when the asset allocation deviates by more than 5% from the target allocation.

Rebalance the portfolio annually, regardless of market conditions or deviations.

Hint

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