Based on your risk preference and time horizon, you decide you need to be 50% invested in stocks, and 50% invested in bonds. Let's say that portfolio is $20,000 where $10,000 is in stocks and $10,000 in bonds. Then stocks go on a tear! They're up 30% on the year. Bonds, meanwhile have take a 10% dip. Your overall portfolio is up 10% on the year, valued at $22,000 and you're feeling really good about things. However, your mix is now off. Stocks grew from $10,000 to $13,000 ($10,000 + 30% growth) and bonds dropped from $10,000 to $9,000 ($10,000 - 10% decline). Your new asset allocation is not
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