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| Rebalancing |
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As markets fluctuate, your asset allocation plan, which was tailored to your individual needs, will shift. To ensure that your portfolio does not become overly aggressive or too conservative, periodic rebalancing becomes essential. The two examples below show how rising and falling markets can impair your asset allocation strategy.
Rising Stock Market
A portfolio consisting of 50% stocks and 50% bonds at the beginning of 1996 would have shifted to 65% stocks and 35% bonds by the end of February 2000.
While a larger allocation to stocks is beneficial when the market is rising, in this case the investor would have been exposed to greater losses during the three-year bear market that followed.
Declining Stock Market
A portfolio consisting of 50% stocks and 50% bonds at the end of February 2000 would have shifted to 31% stocks and 69% bonds by the end of February 2003.
By not rebalancing the portfolio, the investor did not fully participate in the significant stock market rally that began in March 2003.
Hypothetical results are for illustrative purposes only and are not intended to represent the future performance of any specific investment.
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