Diversification
An investor rebalances their portfolio from 70% stocks/30% bonds back to their target of 60%/40%. This strategy helps to:
Rebalancing maintains the intended risk level of a portfolio. When stocks outperform and grow to 70% of the portfolio, the risk has increased beyond the target. Selling stocks and buying bonds brings the portfolio back t
Complete Analysis & Legal Rationale
Rebalancing maintains the intended risk level of a portfolio. When stocks outperform and grow to 70% of the portfolio, the risk has increased beyond the target. Selling stocks and buying bonds brings the portfolio back to the desired 60/40 allocation and risk profile.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.