Rebalancing your investment portfolio: 4 tips to know

Posted on: 18th August 2022 in Financial Planning

Rebalancing your investment portfolio may sound like a complicated process, but it really isn’t. As markets are experiencing fluctuations in the last few months, some investors have seen their portfolios’ values dropping or rising depending on the circumstances and the mix of assets. Some economists suggest that the global economy will fall into recession in the next months. 

Volatile markets could put a strain on your investment objectives. The level of risk may increase if investors succumb to their anxiety and uncertainty, make wrong moves and change their portfolio’s asset mix without taking into consideration the necessary data. Investment decisions play a role in executing your financial plan and the well-being of your loved ones.

Therefore,  portfolio rebalancing is a process that requires knowledge, agility and clear targeting. If you feel that you don’t have the necessary financial knowledge to do it or lack the time, financial advisors can help you achieve your goals, saving you money in the process. 

Building an investment portfolio

Creating a suitable portfolio is a crucial initial step in the investment process. Investments in stocks, bonds, cash, and funds that contain a variety of these asset classes are all part of a portfolio. Don’t put all your eggs in one basket when building your portfolio, even though that’s easier said than done.

The two essential elements that may make this happen are asset allocation and diversification. When it comes to managing risk, “asset allocation” simply refers to spreading your money around to different kinds of investments. Stocks (also known as “equities”), bonds (commonly known as “fixed income”), and cash are all examples of common investment vehicles.

What does rebalancing your investment portfolio mean?

Consistently applying a portfolio strategy over time is a difficult task in and of itself. Your portfolio’s structure will gradually shift over time even if you do nothing to alter it. This happens due to fluctuations in the value of individual holdings within the portfolio. It can throw off your strategic asset allocation significantly. In such a case, rebalancing your investment mix is necessary.

To ensure that your portfolio’s asset allocation and diversification continue to reflect your preferred investing strategy, you should engage in periodic monitoring and rebalancing. This is like getting your car serviced every year in order to improve functionality and safeguard against more serious issues down the line. 

 Here are some things you should know before rebalancing your portfolio.

Recording investment costs is essential

Keep track of the overall cost of each investment and the total cost of your portfolio if you have recently settled on an asset-allocation plan that seems right for you and purchased the proper securities in each asset class. You may use these metrics to look back at your portfolio’s performance and see how it has changed over time.

Rebalance to achieve your retirement goals

Allocations in retirement accounts are a popular target for rebalancing by investors. Many investors prefer to invest more riskily when they are younger and more conservatively as retirement approaches because of the impact that asset performance has on overall value.

When an investor is getting ready to start withdrawing money from their portfolio to pay for their retirement, the portfolio is typically at its most conservative. As a result, a portfolio may undergo a series of rebalancings over the years to reflect a greater fixed-income asset allocation.

Adjust your portfolio allocations without paying excessive fees

As a rule, markets are constantly changing. You shouldn’t have to readjust every day. To begin, you should be aware of the potential expenses associated with trading on your accounts. Take into account any applicable ticket costs or brokerage fees. Second, rebalancing your portfolio during periods of market volatility can be challenging; therefore, you should think carefully about your strategy to avoid excessive portfolio turnover.

Work with a financial planner

You want to achieve your financial goals without any unwanted risk. However, financial markets sometimes are not in line with your investment plans. Did you ever think that a fully qualified financial adviser may be able to suggest a rebalancing strategy that never crossed your mind? Wrong moves may have tax consequences whilst investment risk grows when we don’t have the necessary knowledge to judge how we adjust the mix of investments. 

Finding an experienced investment advisor is of utmost importance as it will allow you to enjoy the benefits of a diversified portfolio and give you access to new rebalancing methods with low transaction fees.

Holborn helps you manage your investment portfolio

Financial downturns do not last forever. There are others who would go so far as to say that economic downturns should be expected.

Obviously, this does not lessen the reality that experiencing a recession is not ideal. However, this is not necessarily the end for your investment portfolio.

In spite of a market downturn, prudent investing can still result in a lucrative portfolio. This is where our services come in.

Holborn Assets is committed to putting the needs of our customers first at all times. Put your money where it will do its best with the help of our straightforward, honest recommendations.

As a company, we’ve been around since 1998. Therefore, we have the necessary experience and an excellent team of fully qualified financial advisers to aid you.