What triggers the need for portfolio rebalancing?

Portfolio rebalancing is a critical process in investment management that ensures the asset allocation remains aligned with an investor's risk tolerance and investment strategy. The correct choice is a change in market conditions.

When markets fluctuate, the performance of different asset classes (like stocks and bonds) can vary, leading to an imbalance in the portfolio. For example, if equities perform exceptionally well while bonds lag behind, the percentage of the portfolio allocated to equities may increase beyond the investor's intended allocation. This excess exposure to higher-risk assets can alter the risk profile of the portfolio, potentially increasing the chance of loss if the market turns.

Rebalancing generally involves selling some of the outperforming asset classes and buying into the underperforming ones, which helps to maintain the desired risk level and can also enhance returns by enabling a buy-low, sell-high strategy. Therefore, a significant change in market conditions directly triggers the need for rebalancing to keep the portfolio in line with the investor's goals and risk tolerance.

Other choices, while relevant to financial planning, do not inherently initiate the rebalancing process. Achieving personal financial goals may prompt adjustments over time, but this is more about strategy than an immediate need. Changing advisors might lead to a reassessment of the