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Does Portfolio Rebalancing Help Investors Avoid Common Mistakes?

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Investing decisions driven by normal human behavior can have a devastating impact upon long-term wealth accumulation. Individual investors, and sometimes even professional fund managers, allow their emotions to get in the way of rational investment decision-making. As investors, emotions often encourage people to buy and sell investments at the wrong time. Investors have a costly tendency to buy high and sell low, pouring more money into the market when it is up and selling when things look dire (Futrelle 2004). From a long-term wealth-accumulation standpoint, this is exactly opposite of what investors should do in order to enhance returns and accumulate wealth. This article presents an overview of some behavioral aspects of investor decision-making and examines the impact of portfolio rebalancing on reducing common investment mistakes and achieving investment goals.