My Life’s Not The Only Thing That Needs Balance – My Portfolio Does Too

Just as I need balance in my life, so too do I need balance in my portfolio.


The end of the year is always a good time to review and put some balance back into your portfolio. Especially after a year like this one, where so much of the performance of the market has come from a small number of shares – namely those that gave the most income.


Over time, some shares increase in value and others may lose value, causing the balance in your portfolio to change. This then, changes the risk and return profile of your portfolio as well.



Portfolio rebalancing is about looking at the way market movements have affected the composition of your portfolio and making adjustments as needed. Bank some of the profits you’ve made, and cut some of the losses on companies that just aren’t performing the way you had expected.  In the words of JF Kennedy “The time to repair a roof is when the sun is shining”.


Over the month we’re going to have a look at asset allocation – the risk and return of different assets such as cash, fixed interest, international investing and how to mix them together to get a balance that suits you. But, for today, we’re going to focus on the balance within your Australian Share Portfolio.


Usually you will use a strategy called Active Rebalancing. This means occasionally trimming back some of the winners and adding a position that would benefit from a change in the markets favourites.


Step 1:            Revisit your target portfolio mix


When you started investing you probably had a plan for your share portfolio; how many shares you wanted and how much you wanted in each.


If you didn’t (or even if you did I find this a good exercise anyway), a good idea is to ask yourself “If I had this much in cash and was investing it for the first time, what would I buy and how would I structure the portfolio?”.


This mix should consider how much risk you’re prepared to take, which sectors, or parts, of the market show the most potential over the next 12 months and what balance between growth and income do you need to achieve your goals.



Step 2:            Compare your target mix to your current mix


This is the fairly easy part.

(a)   Make a list of what you have now.


(b)  Make a list of what you should have in your target portfolio


Go back to what you either planned in the first place, or start with a new portfolio to compare against.


Consider how many shares you should have in your portfolio (we’re going to have an article on this one next month so keep an eye out for it – TIP: there is such a thing as too little or too many shares!).


Look also at how each of the shares reacts with each other. Do you have too many that act in the same way at the same time, like too many banks, or too many resources?


(c)   Compare the two and come up with a comparison to consider which parts of your portfolio need adjusting


We’ve made a quick and helpful tool to help you with this part!

Portfolio Rebalancing Workbook

Make sure you (a) Follow the instructions in the file and (b) leave a comment and let us know if this was helpful!


Step 3:            Re-adjust as necessary


Just because the lists are different, doesn’t meant that you have to change them all, or change them today.


For the stocks that are “overweight” in your portfolio and would need to be sold to come back to your target holding, ask yourself if there’s still further upside in the share price, and what tax implications would come from selling them.


For the stocks that are “underweight” in your portfolio, consider coming up with a target list of which ones are a priority to add to your portfolio, and at what price you would like to buy them at. This way, when you get a pullback in the market, you’ll know which stocks you want to pick up, how many you want, and at what price.


If any of this sounds complicated, it doesn’t have to be. A financial professional can help you come up with a mix of investments which best suits you. She (or he) can help you weigh up the costs of rebalancing your portfolio with the potential gains of doing so. If you don’t have an adviser, give me a call.