Rebalancing a Portfolio: Restoring Asset Allocation

Medium Investment Policy And Allocation Rebalancing

As a portfolio manager, you have established an investment policy stating that your client's portfolio should maintain an allocation of 60% equities and 40% fixed income. Due to market fluctuations, after one year, the allocation has shifted to 50% equities and 50% fixed income. To align the portfolio back with the stated investment policy, you need to determine the appropriate course of action.

Which of the following actions best describes the process of rebalancing in this context?

Sell a proportion of fixed income investments and buy equities to restore the 60/40 allocation.

Hold the current allocation and allow for further market fluctuation before making changes.

Invest additional funds into fixed income to decrease equity exposure.

Hint

Submitted9.1K

Correct5.9K

% Correct65%