BLOG: Is it time to rebalance your investment portfolio?


Having a diversified portfolio is critical to successful investing. It can help you grow your wealth, while limiting the risks you take with your hard-earned money.

This means investing in a combination of different assets such as stocks, bonds, commodities, real estate and alternatives, as well as in a variety of geographies and sectors. The idea is that you choose your different investments based on your goals, time horizon and level of risk…then sit back and relax. To the right?

Wrong. The problem is that nothing is set in stone and what was a perfectly diversified portfolio a year ago may now need some tweaking.

Rebalance your portfolio

We always say that reviewing your portfolio twice a year is enough for most people. It’s up to you when you do – for long-term investors, the date shouldn’t matter.

But a few date “triggers” are January, when we ourselves are on the scales and making New Year’s resolutions, and February/March, when people are thinking about the end of the tax year and pulling the most of their ISA and retirement allowances.

There are a number of reasons why rebalancing is important. For example, a life event may happen that changes things for you financially, or your risk tolerance may change.

All of these things will impact how you view your portfolio and whether it meets your needs.

And of course, some investments may perform well, while others may perform poorly, and the portfolio needs to be recalibrated. Simply by failing to correct imbalances that can arise naturally after large price gains or declines, you could be introducing more risk into your portfolio than you are really comfortable with.

How 2021 has reshaped your portfolio

When it comes to rebalancing, a good starting point can be asset allocation. If you started with 60% stocks and 40% bonds, for example, and now it’s 75% stocks and 25% bonds, is that right for you?

Then look at regional and sector exposure. The Indian stock market, for example, is up around 28%* over the past 12 months and funds such as Alquity Indian Subcontinent have done even better – they are up 44.4%*.

The price of oil has also soared, leading funds like TB Guinness Global Energy to return over 41.4%* over the past 12 months.

If you had these options in your portfolio, they did their job, but do you have too many now? Is it time to reduce your holdings and take profits?

In mixed fortunes, the MSCI China is down 21.5%* over the past year as regulatory clampdowns have taken their toll. Funds like FSSA Greater China Growth managed to post a positive return of 4.2%*, but others weren’t so lucky.

So, to maintain a balanced portfolio, investors may also consider supplementing areas that have been less successful — perhaps redirecting regular savings to those areas over time — or rethinking that part of their strategy.

2022 is not a year for one-way bets

As James Thomson, manager of the Rathbone Global Opportunities fund, recently pointed out to me, with so much uncertainty in the world, 2022 is not a year for one-way bets. “We need a mix of winners from reopening and pandemic, procyclical and defensive, growth and value, recovery and resilience,” he said.

If I had to choose a few additional asset classes that you may not currently hold in your portfolio but probably should consider, I would go for gold and silver to protect against central bank errors (which are a real possibility); financials which are much less attractive than technology but which would benefit from higher inflation; high yield bonds as this is probably the only class of fixed income securities that has the potential to give a real return after inflation; and mining as a game about transitioning to a cleaner economy – we need a whole lot of metals to get electric vehicles on the road.

Funds to consider in these areas include BlackRock World Mining Trust: Jupiter Gold & Silver or Ninety One Global Gold: Man GLG High Yield Opportunities or Baillie Gifford High Yield Bond; and GAM Star Credit Opportunities or Jupiter Financial Opportunities, depending on whether you prefer bonds or financial stocks.

Whatever you do, make sure your wallet is right for you.

*Source: FE fundinfo, total returns in sterling, one year to December 21, 2021

Past performance is not a reliable indicator of future returns. You may not get back the amount originally invested and tax rules may change over time. Juliette’s opinions are her own and do not constitute financial advice.

Juliet Schooling Latter is Research Director at FundCalibre

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