What is the primary goal of portfolio rebalancing?

The primary goal of portfolio rebalancing is to maintain the desired risk level and investment strategy. As market conditions change, the proportions of different asset classes in a portfolio can shift due to varying performance levels. For example, if stocks outperform bonds, the stock allocation may grow larger than initially intended, thereby increasing the overall risk of the portfolio. By rebalancing, an investor brings the allocation back in alignment with their original investment strategy, ensuring that the risk profile remains consistent with their goals and objectives. This process is crucial for managing risk effectively, aligning investments with personal financial goals, and adhering to a predetermined asset allocation strategy.

Other options might suggest goals that do not directly address the need to manage overall portfolio risk or maintain an investment strategy. For instance, increasing the total number of assets doesn't necessarily contribute to achieving an investor's risk tolerances or financial objectives, nor does focusing solely on high-risk assets align with a balanced investment strategy. Additionally, while minimizing taxes is an important consideration, it is typically not the primary objective of the rebalancing process itself.