Series 66 Quiz
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CLIENT INVESTMENT RECOMMENDATIONS AND STRATEGIES
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Which of the following statements regarding portfolio rebalancing is true?
A
In a sustained one-directional market, rebalancing back to the target allocation generally trails a buy-and-hold strategy, while in a volatile, range-bound market it generally outperforms by selling positions that have risen and buying positions that have fallen.
B
Rebalancing back to the target allocation keeps the portfolio's risk level at the investor's intended level at all times, because restoring asset-class weights to their target percentages whenever they drift also holds each asset's own risk constant throughout the entire period.
C
Rebalancing back to the target allocation typically requires the investor to sell securities that have declined and buy securities that have risen, so that each position is held at a cost basis equal to its target percentage of the portfolio.
D
A calendar-based rebalancing policy is a form of market timing, because the investor must forecast which asset class will perform best before each scheduled rebalancing date and then set new target weights accordingly for the upcoming period.
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