What might happen if a policyholder does not engage in portfolio rebalancing?

If a policyholder does not engage in portfolio rebalancing, the risk associated with their investments may not remain aligned with their goals over time. Portfolio rebalancing involves adjusting the proportions of different assets in a portfolio to maintain a desired level of risk and return. As market conditions change, the values of assets can shift, causing the original allocation to drift.

For example, if one segment of the portfolio significantly appreciates while others do not, the overall risk profile of the investment may increase or decrease compared to the policyholder's initial objectives. Without rebalancing, the policyholder could inadvertently take on too much risk if they are overly exposed to volatile assets, or too little risk if they have moved towards more conservative investments. Therefore, it is crucial for policyholders to periodically review and adjust their investment choices to ensure they remain in line with their financial goals and risk tolerance.