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Rebalancing portfolio

Once we have devised a portfolio, we will not actively manage your portfolio; however we will ensure that the original allocation applicable to your portfolio is maintained through quarterly rebalancing on set dates. Rebalancing will return each of the fund holdings within the portfolio to the original allocation weightings.

As an example, if you invest in a portfolio made up of two equal investments into a bond fund and an equity fund. Assuming you invest £5,000 i.e. £2,500 into each fund. Six months later the UK bond fund has risen by 5% to £2,625 but the equity fund has fallen by 5% to £2,375. The rebalance will require that £125 worth of bond fund is sold and £125 worth of equity fund in purchased.

Benefits of rebalancing:

  • As in the example above, changes in investment value could result in you having more or less exposure in a particular asset class than the set original asset allocation weighting. This may influence the overall risk profile of the portfolio.
  • As shown in the example, rebalancing allows an investment which has performed well to be sold, hence taking some profits and then the proceeds being invested in the investment which has fallen in price, thereby taking advantage of a low price.
  • Rebalancing can help save investors from their own worst instincts. It is often tempting to let top performing holdings and asset classes run when the markets seem to keep going up. Investors heavy in large caps, especially those with heavy tech holdings, found out the risk of this approach when the Dot Com bubble burst in early 2000. Rebalancing overtime should have helped those investors realise some profits and diversify into other investments.

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