As your personal status, family dynamics, and financial status change, your investment goals may also change. When this happens, you need to revisit your investment portfolio.
If you have not done a portfolio rebalancing in a short while – don’t worry, it’s not an exercise you need to conduct every year. However, reviewing your total asset allocation over time or after a significant life change is essential to assess if the mix of assets in your investment portfolio still aligns with your overall investment goals.
Due to volatility in the financial markets and regular investment income, such as dividend payouts, your original investment allocation may become altered. You may require a portfolio rebalancing to achieve your desired investment returns.
For instance, “Emily” is a client whose primary investment goal is long-term growth and financial security for herself and her family. She wants to ensure that her investment portfolio aligns with her changing personal and financial circumstances.
In late 2019, Emily received a bequest and began investing during the early days of the pandemic when stock prices were low. Despite her risk aversion, she allocated 30% of her initial investment to stocks, with the remaining 70% in fixed income.
However, if Emily were to leave her portfolio untouched, it could become significantly imbalanced. Currently, stocks represent over half of her total portfolio, which exceeds her original risk tolerance. This increased exposure to stocks poses a higher level of risk compared to Emily’s initial portfolio setup.
Since stocks are generally considered riskier than fixed-income securities, Emily must rebalance her portfolio. This means purchasing more fixed-income assets and selling off some stocks, aiming to restore the initial 30:70 stock to a fixed-income investments ratio that aligns with her risk profile and investment goals.
If you already have a qualified investment advisor or portfolio manager working for you, this type of rebalancing should already be part of their process. At least annually, your investment advisor or portfolio manager will discuss your risk profile, desired investment return, investment period, and financial goals, amongst other factors, to determine how best to rebalance your portfolio.
This regular rebalancing exercise is the area where do-it-yourself investors often neglect their duty. It’s extremely easy to get caught up in life and fail to adjust to a portfolio that has become either imbalanced or inappropriate for your current situation.
Your Foster Portfolio Manager or Financial Advisor can take a fresh look at your investments and recommend the necessary steps you need to take to achieve your financial goals.
Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice. Everyone’s situation is unique, and this article cannot apply to every person. The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.
