September 28th, 2021

How regular rebalancing can really benefit your clients

When it comes to building a balanced investment portfolio, there can be a lot to think about. Investors need to understand their long-term goals, attitudes to risk, and the benefits of diversification when making a plan.

However, markets are constantly changing, and this means that even the most meticulously tailored portfolio may need occasional rebalancing. If your clients have long-term investments, it’s likely that their investment spread has changed over time.

This can lead to a portfolio being overly weighted in some areas, increasing the amount of risk your client is exposed to. Read on to find out how rebalancing can benefit them.

Diversifying a portfolio reduces its exposure to risk

A healthy investment portfolio should contain a variety of different assets in a spread of sectors. This is called “diversification” and helps to reduce the investor’s exposure to risk.

Broadly speaking, there are four main asset classes: equities, bonds, property, and cash. A balanced portfolio usually contains a combination of these.

To put it simply, diversifying a portfolio is the investing equivalent of not putting all of your eggs into one basket. Spreading the risk means that if a crash impacts a particular market or sector, the whole portfolio won’t be affected. Furthermore, a fall in one area could even be offset by a rise in another.

Diversification is a useful way of managing risk, which is why it’s important to ensure that your client’s investment portfolios are properly balanced.

The pandemic has made many people reassess their financial goals

The coronavirus pandemic has impacted our lives in a variety of ways, from the use of face masks to the opportunities for working from home. However, one of the most important ways it has affected society is that it has made many people reassess their long-term goals.

According to a study published by FTAdviser, the financial disruption caused by the pandemic has prompted many people to push back their retirement plans. More than two-fifths of people now want to continue working into their fifties and sixties.

When a person’s life goals change, it’s important that their financial plan changes too. This is where periodic rebalancing can help.

If you have clients who are approaching retirement, it’s important that their portfolio investments align with their goals. Despite what many people think, the success of an investment isn’t measured by the size of the return it generates but rather by whether it helps to achieve a financial goal.

For example, if you have a client who is 10 years away from retirement and wants to use their investments to supplement their retirement income, they may be willing to take a certain amount of risk.

However, if the client suddenly changes their investing horizon, such as by bringing their retirement forward by five years, then they may need a lower-risk approach.

This is because a shorter timeframe can make them more vulnerable to market volatility. If there is a sudden drop in the value of their portfolio too close to their goal, there may not be enough time for it to recover.

This is where periodic rebalancing can help, to ensure that your clients stay on the right side of the ebb and flow of market movements.

Working with a financial planner can help your clients to regularly rebalance their portfolios

If your clients want to be able to retire with confidence, it’s important to ensure that they aren’t exposing their wealth to any undue risk. This is where working with a financial planner can help.

Over time, plans can change, and natural market movements can shift the balance of a portfolio, leaving it more exposed to risk. If a particular asset performs more strongly than another, it can lead to a spread of investments becoming unbalanced.

For example, in periods of strong economic growth, equities typically outperform assets such as bonds. This means that if the stock investments consistently outperformed the bond holdings, it could lead to an overexposure to equities.

If this happened, a financial planner could help your clients to rebalance the spread of their investments to make sure that it properly aligns with their goals.

Working with a planner can also help to give your clients a greater sense of confidence that their investments are working to reach their goals, as well as peace of mind to know that they aren’t exposed to any more risk than they need to be.

Get in touch

If you have any clients who are approaching retirement and may benefit from periodic rebalancing, get in touch. Email or click here to request a call back from one of our advisers.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.


More stories


July 11th, 2024

Should your clients pay university costs or let their children take on student debt instead?

Read more


July 11th, 2024

What is the new “tourist tax” and which locations are introducing it?

Read more

Contact us