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WHEN PORTFOLIO REBALANCING MAKES SENSE
3/28/2017 11:20:15 PM
HOME : FEATURES : QUESTION & ANSWER : WHEN PORTFOLIO REBALANCING MAKES SENSE
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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert



By Robyn K. Thompson  | Friday, December 23, 2016


Q – I believe that my investment portfolio is fairly well balanced, with about 60%. in equities and 40% in fixed income assets. I do trade from time to time, but generally I stick to a buy-and-hold strategy. But with the recent surge in equities and selloff in bonds, would you recommend rebalancing now? And how often do you recommend rebalancing? – Stefanie D., London, Ontario

A – These days, both bond and equity markets have experienced bouts of intense volatility, so your assets are likely to experience frequent gyrations in valuation. This may cause your asset allocations to stray from your original investment objectives, changing the risk level in your portfolio and affecting longer-term returns.

Rebalancing is a way to realign your portfolio with its intended objective. If you started out a couple of years ago with your portfolio at 60% equity and 40% fixed-income, you will have noticed that fixed-income investments have in many cases declined in value while equities have increased.

You may consequently now be holding a larger equity position overall than you had originally intended to – say 70% or 75% allocation. This overweights your portfolio in equities beyond your target 60% allocation, and because equities are inherently riskier assets, the distortion has unintentionally raised your portfolio’s overall risk profile.

It’s important therefore to look at your asset allocation at least once a year, and preferably twice a year during periods of higher volatility, to calculate your relative equity and fixed-income allocations. Then rebalance back to your original objectives. You may need to sell some equity positions and buy bonds or vice versa to maintain your original target allocations.

Rebalancing is an important tool you can use to mitigate risk and is a key component of the investing process. – Robyn

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management , a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

© 2016 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

 
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