Multiple choice

Circumstances that might cause an investor to change the composition of his portfolio are

  1. cyclical changes in economy

  2. unforeseen economic change affecting the portfolio's preferred sectors

  3. both the above

  4. None of the above

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Portfolio composition should change when economic conditions shift. Cyclical changes affect overall market dynamics, while unforeseen economic changes affecting preferred sectors necessitate reallocating away from impacted sectors. Both are valid triggers for rebalancing. Failing to adapt to these changes can lead to underperformance or increased risk.