Porfolio Rebalancing

Tee

I have been drip-feeding my ISA allowancing in a HL S&S ISA for the past 3 years. I currently have 12 funds and what I consider a very diverse porfolio (geographical region, asset type, etc). When should I think about rebalancing? Quarterly, annually or when the amount invested reach a certain size (eg 50k), etc. Does it make sense to rebalance on a small porfolio? I plan on using my ISA allowance for the next 2-3 years. I have no short or medium-term plan for the money.

You input on the above would be grately appreciate.

Tee

Reaper

I would suggest reviewing it annually but that doesn't mean you necessarily have to take any action when you do, it's only if a sector booming or dropping means it is no longer the diverse portfolio you intended. Only you can decide what tolerances to allow.

dunstonh

I tend to look it annually unless the allocations change significantly enough to make it worth doing earlier or some event occurs to prompt a change.

B_Blank

Remember your "portfolio" is basically everything you own. So if you have cash then thats part of your portfolio. I would put about 50% in cash, 30% in bonds and 20% in equities at the moment. Thats my strategy.

Tee

Thanks a lot to all those who replied.

I think that going forward, I will assess if any rebalancing is needed when I review the portfolio at the end of the tax year so that I know how to make the upcoming year's contribution; i.e., unless there has been a major development.

koru

It depends how sure you are about the original portfolio allocation. For instance, if you put 20% of your portfolio into North American equities, how sure were you that the allocation should be precisely 20%? If you're anything like me, you may have plumped for 20% on the basis that it seems about right, but you could easily have plumped for 15% or 25% instead. Think about the range of allocations that would have been equally acceptable. Maybe you would have been happy with 10% or 30%? Or maybe you were certain that it really should be pretty close to 20%, so you would not have been happy with anything less than 18% or anything more than 22%. Only you can decide this, unless you were acting on the advice of an adviser.

What I'm trying to say is that even if you originally allocated, say, 20% to North American equities and this has subsequently grown to 25%, this need not necessarily mean that you should be rebalancing unless 25% allocation exceeds what you think is appropriate for North American equities. There is no point mindlessly rebalancing; you need to think about whether relative movements of your portfolio have been so pronounced that your portfolio now has too much or too little of a particular sector or asset type.

You also need to think about whether there are any costs of rebalancing. If HL do not rebate the full initial charge, this means you could be losing 0.25% or 0.5% of your investment just for rebalancing, so I would be particularly sceptical about rebalancing unless you are sure that you have become unacceptably over or under weighted.

Tee

koru wrote: »

It depends how sure you are about the original portfolio allocation. For instance, if you put 20% of your portfolio into North American equities, how sure were you that the allocation should be precisely 20%? If you're anything like me, you may have plumped for 20% on the basis that it seems about right, but you could easily have plumped for 15% or 25% instead. Think about the range of allocations that would have been equally acceptable. Maybe you would have been happy with 10% or 30%? Or maybe you were certain that it really should be pretty close to 20%, so you would not have been happy with anything less than 18% or anything more than 22%. Only you can decide this, unless you were acting on the advice of an adviser.

What I'm trying to say is that even if you originally allocated, say, 20% to North American equities and this has subsequently grown to 25%, this need not necessarily mean that you should be rebalancing unless 25% allocation exceeds what you think is appropriate for North American equities. There is no point mindlessly rebalancing; you need to think about whether relative movements of your portfolio have been so pronounced that your portfolio now has too much or too little of a particular sector or asset type.

You also need to think about whether there are any costs of rebalancing. If HL do not rebate the full initial charge, this means you could be losing 0.25% or 0.5% of your investment just for rebalancing, so I would be particularly sceptical about rebalancing unless you are sure that you have become unacceptably over or under weighted.

This adds some spice to the mix. I didn't think about the costs of rebalancing. Initially, I was happy with the spread at the end of year 1. Now, three years on, I think that I may need to change things a bit. What I tended to do in the past was decide at the beginning of the financial year if to increase or decrease topup for particular funds. Hmmmm, will need to think about this some more. Thanks

Totton

I review every 3 months and rebalance if things are skewed by 10% but will consider doing so at 5% or where there is a significant change in matters such as the economy, manager etc. For example, if the economy bombs then I may want to move more into something that earlier was too expensive for me but now represents a good opportunity.

Costs are not an issue as all funds are free of charge via the HL platform. I really don't see the point of waiting a year to admit a mistake if there is an earlier opportunity to rectify. For example, if you bought a fund to follow a manager you may want to review that fund if the manager leaves, not saying you will sell it but surely you would want to review :-)

Regards,
Mickey

dunstonh

Costs are not an issue as all funds are free of charge via the HL platform

Increasingly the case across most platforms. Typically, the only issue you have to worry about is CGT on unwrapped investments.

Tee

Thanks to you both. I will seriously think about reviewing quarterly or semi-annually.

I hold the Funds as part of an ISA so don't have to worry about CGT. Besides, I don't have that much invested in there as yet.