Final answer:
Portfolio rebalancing can be triggered by changes in tax circumstances, time horizon for financial goals, and liquidity needs. These factors, along with external shifts in financial capital supply and investor confidence, necessitate adjustments to achieve the original asset mix or to align with new investment strategies. Option D is correct.
Step-by-step explanation:
Rebalancing a portfolio is a key process that aligns an investor's financial strategy with their current needs, goals, and market conditions. Such rebalancing could be triggered by changes in tax circumstances, changes in time horizon for goals, and changes in liquidity needs.
All of these factors can have a significant impact on an individual's investment strategy and may necessitate the reallocation of assets within the portfolio in order to maintain the desired level of risk and to meet the anticipated needs for funds.
For instance, a change in tax circumstances might make certain investments less attractive due to higher taxation, thus requiring a shift in assets to more tax-efficient options.
A change in time horizon, such as getting closer to retirement, might prompt an investor to move towards more conservative investments. Lastly, an increase in liquidity needs could lead to a greater allocation in liquid assets to ensure funds are readily available when needed.
It's also important to recognize that external factors such as shifts in the supply of financial capital due to consumption changes or altered investment risk and return profiles can influence the rebalancing decision. Investor confidence driven by business and consumer outlook also plays a role in determining both the demand and supply of different investment assets.