The importance of rebalancing your investment portfolio

Category: News

Building an investment portfolio involves understanding your investment goals, your attitude to risk, and the benefits of diversification.

But markets are in constant flux, and occasionally, even the “perfect” mix of investments might need rebalancing.

With the Bank of England base rate at a historic low currently, savings held in cash will effectively be losing value against inflation. You might be tempted to increase your level of investment or even begin investing for the first time.

Here’s how Globe IFA’s team of expert financial advisors can help you put an investment plan in place, whatever your goal.

Investment planning starts with getting to know you

You might be investing for retirement, to help ensure you have the money set aside to leave work on the date of your choosing, and to live comfortably when you do. You might have young children and be investing for their future, building a fund to help them through university or onto the property ladder.

Our first step at Globe is always to get to know you and your situation. By understanding your goals and timescales, as well as your attitude to risk, we can use our decades of experience and knowledge to build a bespoke investment strategy that works for you.

Investing should always be a long-term proposition and we can help you manage your investment to give you the best chance of achieving your goal.

We manage your investment by understanding the markets and your attitude to risk

Recent news stories surrounding Bitcoin, and the short squeeze of GameStop shares that cost some investors billions, have helped to highlight the importance of managing risk versus reward.

The success of an investment isn’t measured by the size of the return but by whether it achieves your investment goal.

We understand that the general trend of the markets is an upward one and that “it is time in the markets not timing the markets” that reaps the best rewards. We will help you invest for the long-term and won’t expose your funds to unnecessary risk.

It is your goal, and the timescale for achieving it, that informs your attitude to risk, along with your capacity for loss.

If you are ten years from retirement and using your investments to supplement your retirement income, helping to ensure you can live the lifestyle you want, you might find that you are willing to take a certain amount of risk.

An investment that will be required within five years – the minimum period we would recommend for any investment – and that is intended to help support your child through education, might require a lower-risk approach. This is because a shorter investment term leaves you more vulnerable to the impact of market volatility. A large drop too close to your goal might leave insufficient time for your funds to recover.

We can help you manage your investment’s risk exposure, partly through diversification.

Diversification allows us to spread your investment risk

The investment portfolio we help you put together will be made up of different asset classes. Some, such as bonds, will be low risk. Others, like shares, will be higher risk. This is known as “diversification” and it is the investment equivalent of not putting all your eggs in one basket.

Depending on your risk profile, the proportion of each asset class might vary, but by diversifying we spread your risk. We mitigate the effects of a loss in one area by hoping it is offset by a rise in another.

Asset class isn’t the only way to diversify a portfolio.

Different industries and sectors within industries will present different opportunities, as well as levels of risk. We will also look to create a geographically diverse portfolio, incorporating UK and global assets.

Rebalancing is another way to manage risk

As the prices of different markets fluctuate, your “perfect” mix of shares and bonds – or higher and lower risk investments – might be thrown off course. The original make-up of your portfolio is expressly designed to meet your goals while exposing you to the lowest possible risk, so rebalancing might be necessary.

Rebalancing isn’t intended to create higher returns, just to realign your investment to ensure it accurately reflects your risk profile.

It might involve selling off bonds that are performing well to bolster shares if equity prices have fallen. Rebalancing could lower your returns in the short term, while offering maximum protection over a longer period, and giving you the best chance of achieving your investment goal.

Get in touch

If your long-term goals haven’t changed it is unlikely your investments will need to, but priorities can alter. If you would like to discuss rebalancing your portfolio or investing for the first time, get in touch to find out how Globe’s expert team of financial advisors can help you.

Please email or call us on 020 8891 0711.

Please note

The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.