Re-balance portfolio regularly

To create wealth one needs to re-balance a portfolio on a regular basis, especially with the recent market volatility.

To create wealth one needs to re-balance a portfolio on a regular basis, especially with the recent market volatility.

This technique is a sound and logical investment strategy that removes sentiment from the equation.

Few have the knowledge or skill to invest early and sell before it is too late and without sound investment techniques, it is impossible to say whether one should be buying or selling.

Before you begin the process ask yourself: "How much risk am I prepared to take?"

This will determine your asset allocation. Once you have completed this exercise, then at each review period, which could be quarterly, annually or bi-annually, review your portfolio by examining whether the balance of your portfolio has changed.

Re-balancing will determine your future investment strategy and ensure that, when the downturn comes, some profits will have been taken.

Steps in re-balancing :

1. List and total all your investable assets. Be thorough. Include everything.

2. Calculation - from the above total, separate the assets into different investment classes, namely equities, bonds, cash, property and hedge funds.

3. Assess your risk and determine the parameters of your investment. How much risk are you prepared to take? A risk profile will assess if you are a conservative, moderate, cautiously aggressive or very aggressive investor. Factors that determine your profile are time horizons, growth versus need for income, level of risk and tolerance for risk.

4. Re-balance the portfolio to the mix you would like it to be. Once you have determined your mix, the review periods will allow you to make changes and to re-balance.

If nothing has changed in your personal life then there is probably no reason to change your risk profile. Look at your assets to see whether the mix has changed, thereby increasing or reducing the amount of risk in your profile.

The re-balancing process will ensure that you will tend to sell into strength, simply because when your portfolio is overweight in an asset class, it has come about because of good performance.

Conversely, if your portfolio is underweight, the reason is usually because of a fall in the value of that particular asset. Not many investors can do this because one battles to buy when trends are down (fear) and sell when values are up (greed).

Re-balancing is not easy and requires a lot of discipline, but if you stick to the formula you won't be as concerned about short term fluctuations and will be buying some quality stocks at good value.

l Bryan Hirsch is a director of Pioneer Financial Planning. Visit