What is Portfolio Rebalancing and why do you need to do it?


“Rebalancing” is the process of bringing your portfolio back in line with the original “Asset Allocation” mix we had agreed on, for your given ASPL Risk Profile and objectives.

Why rebalance? Well, the investment return delivered and the degree of risk associated with the return vary over time. Realigning your portfolio to its target mix is designed to keep the risk profile the same.

For example, if you were an ASPL “Balanced” investor with, say, 19% invested at outset in “UK Equities”, a subsequent rally could increase this holding to, say, 30% of the total (at the expense of another asset class). This new amount might be considered to be “too risky” for a “Balanced” investor.

Failing to rebalance can lead some investors to sell in panic, or suffer big losses when their (new) “overweight” UK Equity position starts diving during a stockmarket sell-off.

At ASPL we discuss with you your own personal preferences and objectives at the time of a potential rebalancing exercise, which can often lead to a decision to adjust your asset allocation away from the then current ASPL (neutral) position. (For example, you may think that a market or asset is undervalued and ready for a rally, and so want to increase your exposure accordingly).

This is why our clients’ portfolios are bespoke and therefore rarely identical. And why we make regular reviews part of our financial planning and management service.  It’s your money after-all, and we never forget that.

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Adrian Smith

Chartered Financial Planner
Chartered Wealth Manager

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