The investment strategies mentioned here may not be suitable for everyone. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. If done within a brokerage account, rebalancing may result in taxes. Rebalancing your portfolio is an important step in controlling risk. By selling positions that have become overweight in relation to the rest of your portfolio and moving the proceeds to positions that have become underweight, you can bring your portfolio back to its original target allocation. If any weights are meaningfully different, it may be necessary to buy or sell positions to align your portfolio with your target. Rebalancing means looking at the percentage of stocks, bonds, cash, and other investments in your portfolio to make sure the relative weights of each align with your target asset allocation. Rebalancing is designed to keep your portfolio's target allocation across different asset classes, and intended level of risk, consistent over time. You'll want to monitor your asset allocation and possibly rebalance annually (or more frequently) if markets are making big moves. That doesn't mean you can ignore your investments, however. Once you've selected an asset allocation in line with your risk tolerance and invested accordingly, you can take a long-term view. When there are more sellers than buyers, the price of the stock drops. The purchase price of stock is dependent on demand: When there are more buyers than sellers, the price of the stock rises. ![]() Keep in mind that the price of a stock can fall as easily as it can rise. Investors buy and sell stocks for a number of reasons, including the potential to grow the value of their investment over time, to potentially profit from shorter-term stock price moves, or even to earn an income by investing in dividend-paying stocks. Stocks are generally bought and sold electronically through stock exchanges, the two primary ones in the United States being the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Returns are achieved either by selling the stock at a profit for a higher price or through receiving dividends (though neither of these outcomes are guaranteed). When the value of the business rises or falls, so does the value of the stock. ![]() As such, stockholders are partial owners of the company. That's why when you have a long-term goal like a child's education or retirement, investing is especially important.Ī stock represents a share in the ownership of a company, including a claim on the company's earnings and assets. Time is an essential ingredient, helping to smooth out market volatility. Over time, this can lead to significant gains. Compounding (or compound growth) is what happens when you reinvest your earnings-and keep them invested-to generate more earnings. If your investments grow in value, that growth can compound. ![]() When you invest, on the other hand, you're using money to try and make more money. That'sĪppropriate for short-term goals, but your money is likely to lose value over time when taking inflation into account. ![]() Most savings are held in conservative accounts that are relatively safe and easily accessible but have minimal growth potential. Saving money is spending less than you earn and setting that money aside for the future-whether that's for an emergency or for a specific goal like a vacation or a new home. Saving and investing work hand in hand in building long-term wealth and financial security.
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