Consider portfolio rebalancing as a garden that you’ve planted with a variety of flowers, vegetables, and herbs. When you first plant your garden, you have a specific design in mind with a certain balance between the types of plants. As time goes by, some plants may grow faster or larger than others, overshadowing the smaller plants and throwing off the balance of your garden.
Rebalancing your portfolio is like tending to your garden. You might trim back the plants that have grown too large so that they don’t take over the space, and you might plant more of the smaller ones to restore the balance you originally intended. This ensures that no single type of plant dominates your garden, and all plants have the space and resources they need to thrive.
In financial terms, rebalancing involves selling off some of the investments that have grown to represent a larger portion of your portfolio than you intended, and buying more of the investments that now represent a smaller portion. This helps maintain the level of risk you’re comfortable with and keeps your investment strategy on track. It’s a way to ensure that your investment “garden” remains well-tended and in line with your financial goals.
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