If you never rebalance, what is a likely consequence?

• A. Drift away from target risk and potential underperformance
• B. Lower taxes
• C. Higher liquidity
• D. Lower risk

Answer: (A)

Maintaining a target mix through rebalancing keeps your portfolio aligned with the level of risk you’re comfortable with. If you never rebalance, the different asset classes will drift apart because they don’t grow at the same rate. Over time this can make your portfolio heavier in one, typically riskier, asset class and lighter in another. That drift increases actual risk beyond what you planned and can lead to weaker performance relative to a strategy that sticks to the target allocation. Taxes and liquidity aren’t the primary outcomes of not rebalancing, and the drift usually raises risk rather than lowers it. So the most likely consequence is drifting away from the target risk and potentially underperforming.