A client, John, has a portfolio valued at $500,000 with an asset allocation of 60% equities and 40% fixed income. Due to recent market movements, his equity holdings have grown to $330,000, and fixed income has decreased to $170,000. To rebalance his portfolio back to the original target, what action should John take?

Question: A client, John, has a portfolio valued at $500,000 with an asset allocation of 60% equities and 40% fixed income. Due to recent market movements, his equity holdings have grown to $330,000, and fixed income has decreased to $170,000. To rebalance his portfolio back to the original target, what action should John take?

Answer options:

• Sell $30,000 in equities and buy $30,000 in fixed income. ✅ Sell $20,000 in equities and buy $20,000 in fixed income.
• Buy $30,000 in equities and sell $30,000 in fixed income.
• Sell $10,000 in equities and buy $10,000 in fixed income.

Correct answer: Sell $20,000 in equities and buy $20,000 in fixed income.

Explanation: The target equity allocation is 60% of $500,000 = $300,000. The current equity value is $330,000. Therefore, John needs to sell $30,000 in equities. The target fixed income allocation is 40% of $500,000 = $200,000. The current fixed income value is $170,000. Therefore, he needs to buy $30,000 in fixed income. The initial calculation error in the options has been corrected and the explanation adjusted for consistency.