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Want to rebalance your portfolio? Here's what you need to know…

by , 04 July 2014

Rebalancing is a great way of reducing your investment risk and getting better returns. By keeping your investment portfolio in check and taking it back to your original asset allocation, you can reap the rewards. So if you want to do it, how often should you rebalance your portfolio? And how can you add more money into your investment pot? Read on to find out this and more…

How often to rebalance

Some advocates of rebalancing might do so every day! This might seem a bit too much for the average investor, not to mention expensive, Phil Oakley in Money Week explains. It would take up far too much time and the trading costs would definitely rack up.

For a retail investor, you have a few options when it comes to when to rebalance your portfolio. You could opt to rebalance on an annual basis. Or you could rebalance once your asset allocation moves more than 5% or 10% off its original target.

If you’re serious about rebalancing, find a system that works for you.

You also need to take into consideration any changes you’re making. For example, if you have a large portfolio, selling could mean you owe capital gains tax. So you might want to look more into how you do this and when so it is in a tax efficient manner.

What to do when you want to invest more?

The best option you have is to put the money into your portfolio’s worst performer.

And you have a choice when it comes to the money generated from dividends from your shares.

Reinvesting your dividends is a great way to grow your wealth and compound your returns. If you decide to keep doing this, you need to make sure you’re not investing in the expensive shares you own.

The best thing to do is automatically reinvest your dividends. You need to speak to your stockbrokers to see if they offer this facility.

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If this isn’t possible, keep the money in your stockbroking account and invest into something else instead next time you rebalance your portfolio.

Successful investing isn’t an easy task. But rebalancing your portfolio can improve the chances of your portfolio performing better over the long-term.

So there you have it, what you need to do if you want to rebalance your portfolio.



Want to rebalance your portfolio? Here's what you need to know…
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