Autumn is very much a season of change; a time when nature rebalances and adapts. Similarly, investors need to adapt to their changing landscape; and this is achieved by periodically rebalancing portfolios to optimise returns and maintain an appropriate balance between risk and reward.
A fine balance
Investing does not simply involve building an initial portfolio and then leaving it to perform unaltered until retirement. A portfolio consists of a combination of various asset classes that have been carefully tailored to suit each individual investor’s risk appetite and return objectives. Over time, however, market fluctuations inevitably result in investment values changing, which can lead to a portfolio drifting away from an investor’s original asset allocation.
Disciplined approach
From time to time, a portfolio therefore needs fine tuning, or rebalancing, to ensure that the desired allocation of assets remains in line with an investor’s chosen strategy. Adopting a disciplined approach to rebalancing is essential if investors are to maintain an appropriate level of risk within their portfolios and also to enhance expected returns.
Changing landscape
The importance of rebalancing has been heightened by the significant changes in the investment landscape witnessed over the last year or so. The higher interest rate environment prevailing now and the resulting impact on bond yields, for instance, may mean that some investors need to reconsider whether their allocation to bonds remains appropriate in the current economic climate.
We’re here to help
Portfolio rebalancing is clearly a powerful tool that can help restore an investor’s original investment plan and adapt to changing market conditions. The process requires careful analysis and decision making to balance consideration of various factors including tax implications. This is where we can help – by regularly reviewing and rebalancing a portfolio, when necessary, we can help you to pursue your financial goals with greater confidence and provide stability throughout your investment journey.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.