chapter 8

Establishing a Rebalancing Strategy

Any asset allocation strategy that you implement, no matter how sound and effective the approach, won’t be complete if you don’t establish a rebalancing strategy to go along with it. Rebalancing refers to the simple act of routinely resetting your mix of stocks, bonds, and other asset classes back to their intended mix.

One way to achieve this is by directing new money into assets that have fallen in value to replenish your overall allocations. But the most common approach to this strategy is to sell some of your winning investments and use that money to replenish your exposure to underperforming asset classes.

This may seem counterintuitive to you, since you’ve probably been taught that “buy and ...

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