What do you do when you feel out of whack? When you’re stressed out and feeling as though you’re out of balance? Many people find meditation, exercise or yoga activities that help them to rebalance and centre themselves. Or you take a visit to your masseuse, chiropractor or physiotherapist for a regular adjustment.

Just like your health, your finances can also get out of alignment. Your portfolio, whether ordinary investment or superannuation, can easily shift from your strategic (or target) allocation (that is, the percentage of assets you hold in each type of asset class) when markets move.

For example, you may start with your portfolio as having 50% in shares and 50% in fixed interest and cash, but after 12 months with share markets moving downwards and fixed interest yields improving, your allocation may have shifted to 30% in shares and 70% in fixed interest and cash.

Your portfolio’s asset allocation is the major determinant of the risk and return characteristics of the portfolio. The primary goal of rebalancing is to minimise risk relative to your target allocation (as opposed to maximising returns).

To recapture your portfolio’s original risk and return characteristics, you should rebalance your portfolio on a regular basis. “Regular”, is usually semi-annually, annually or whenever the percentage allocated to an asset class is more than 5 per cent off your target.

Rebalancing is easier said than done because it means you need to sell winners and buy into underperforming asset classes. It takes discipline and an objective, pragmatic approach.

When was the last time you checked your portfolio’s asset allocation and compared it to where it should be to keep your risks minimised?
If it’s been more than 6 months, give us a call today to discuss rebalancing your portfolio.