An important part of the work we will do for you is to rebalance your investment and pension portfolios on a regular basis, where appropriate.
To rebalance a portfolio means to review and adjust the investments held within your portfolio. The aim is to bring it back into line with its stated objectives and to control the level of risk. Here is an example of how rebalancing works.
Let us consider an investor who has £200,000 to invest. In this example, for ease they will invest into two types of investments. The first is shares and the second is corporate bonds. Corporate bonds allow companies to raise money. The investor puts 50% into each type of investment.
Over the next year, the Shares portion increases in value by 20% and the Corporate Bond part falls in value by 10%.
At the end of this first year portfolio has increased by 5% and they now have:
Corporate Bonds £90,000
The split of the investments has also changed. One part increased in value and the other has fallen. The investor now has 57% in Shares, and 43% in Corporate Bonds. This will increase the level of risk in the portfolio as the shares portion is bigger.
If they do nothing and the next year the Shares rise by 20% and the Corporate Bonds fall by 20%, now the position at end of year two is:
Corporate Bonds £72,000
The portfolio overall is still going up, but the investment split is way out of line. Over two thirds of the portfolio is invested in shares.
If we rebalanced the investment portfolio after twelve months the following would happen. A rebalance would sell some of the shares and buy some of the corporate bonds. The split is now equal 50/50. At the start of year two £105,000 would be held in each investment. The process is repeated regularly so that the investment portfolio moves back to the recommended split.
This is only an example. In reality we would recommend more than two types of investments to be held in a portfolio. We might also include property, cash, overseas stocks and shares as well as overseas government and corporate bonds. We recommend clients rebalance their portfolios as it aims to:
Time and time again forecaster try to predict what will happen in the future to Stock Markets. In reality, nobody knows what Markets will do next.
The Wall Street Journal in the US recently
published an article about the performance of Global Stocks and Shares. The
article was called, “ Global
Stocks Post Strongest First Half in Years, Worrying Investors
for stocks and shares investors is whether the strong first six months of 2017 heralds
a choppier second half or the start of a multiyear upswing. The data on global
rallies offers a mixed record.”
In plain English, this means:
“It’s impossible to predict whether markets will go up or down for the latter half of the year. Markets could go up or down or even trade sideways.”
The newspaper article also reported that: “Most of the major stock Market Indexes, 26 in total have risen in value so far in 2017. The last time this happened was in 2009.
Over the month weeks and months, we are looking to improve the personal finance portal (PFP) for our clients. The first stage is to introduce a live chat, audio and video service whilst clients are logged into PFP. This is the first level of improvements we will be making over the coming months. The live chat service is safe and secure.