New study shows
Regularly reviewing and rebalancing your portfolio could have boosted your investment returns by over £5,000, analysis from Fidelity International reveals.
While following the adage of not putting all your eggs in one basket when building your investment portfolio is a sensible investment strategy and will often serve you well, it’s equally important to monitor your portfolio once it’s set up.
Over time an investment portfolio can become unbalanced due to the ups and downs of its constituent investments. It is critical, therefore, to periodically review the balance of your holdings to ensure they continue to meet your needs. Furthermore, by rebalancing your portfolio annually you could significantly enhance your returns.
For example, if you had invested a £1,000 in each of the thirteen principle asset classes (see Fig 2) 20 years ago, your initial investment would now be worth £52,881*. However, had you been even more prudent and rebalanced your portfolio equally across the thirteen different asset classes each year then your investments would have grown to £57,930 – over £5000 more.
Tom Stevenson, investment director for personal investing at Fidelity International comments: “While simply investing in a diversified portfolio and forgetting about it will have yielded you some very good returns, our analysis shows that it can really pay to take the time to review and rebalance your portfolio.
“This makes sense. Rebalancing allows you to crystallise some of your gains while also exposing you to subsequent recovery in asset classes which have underperformed.
“Not only can reviewing and rebalancing your portfolio significantly boost your returns, it also helps to ensure that your portfolio continues to be aligned to your risk appetite and objectives – as market movements can knock your portfolio out of kilter.
“Remember, that you don’t need to do this too frequently – indeed there is a good argument for not tinkering too much with your portfolio as doing so will incur unnecessary trading costs and won’t give your investments time to grow. A proper review once a year is sufficient.”