The Importance of re-balancing investments

  • by Graham Bond
  • 25 Apr, 2017

Controlling investment returns

rebalancing investments

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:

Shares £120,000
Corporate Bonds £90,000
Total £210,000

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:

Shares £144,000
Corporate Bonds £72,000
Total £216,000

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:

  • Help control the level of risk within the portfolio.
  • Creates a more predictable return the longer the portfolio is held. This will help if you have specific goals and objectives, such as retirement.
  • Automatically take profits from good performing investments and creates a buy low sell high approach. Opposite to most investors.

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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.

by Graham Bond 29 Jun, 2017
Here's an update on Personal Finance Portal. From the 4th July our client portal will have a new look and feel about it. 
The software provider we work in conjuction with have revised the format to make it easier to use for our financial planning clients.

The Personal Finance Portal is a quick and secure way to obtain up to date valuations on your pensions and investments. It also offers you a way to communicate safely with us as the service is encrypted. The same cannot be said about email, which is not secure. 

The aim is to make the navigation easier to use and to provide more information to you on your finances. 

The video below shows some of the improvements that will be made. We hope you find it useful and informative. 

To access our portal please click this link

If you would like to find out more about the Personal Finance Portal please feel free to contact  us on 01454 321511. Consilium Asset Management offer Independent Financial Advice to private and business owners in the Bristol area. 
by Graham Bond 21 Jun, 2017

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.

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