{"id":1460,"date":"2023-02-01T05:22:35","date_gmt":"2023-02-01T05:22:35","guid":{"rendered":"https:\/\/actinvest.com.au\/?p=1460"},"modified":"2023-02-01T05:22:35","modified_gmt":"2023-02-01T05:22:35","slug":"when-to-be-proactive-about-your-portfolio","status":"publish","type":"post","link":"https:\/\/actinvest.com.au\/index.php\/when-to-be-proactive-about-your-portfolio\/","title":{"rendered":"When to be proactive about your portfolio"},"content":{"rendered":"

The mid-year point is an opportune time to take stock of your investment holdings \u2013 but reviewing your portfolio should really be an ongoing exercise.<\/p>\n

\"\"<\/p>\n

.<\/p>\n

It\u2019s been a turbulent year-to-date on global share markets.<\/p>\n

Over the first six months of 2022, the Australian share market has fallen around 14 per cent.<\/p>\n

The performance of international markets has been even worse, with inflationary fears, rising interest rates, and geopolitical concerns continuing to drive investor sentiment.<\/p>\n

In fact, the U.S. market is now down more than 20 per cent from its January start, and key markets across Europe, Asia, South America, and Africa are also sharply lower.<\/p>\n

And what\u2019s occurred so far this year is a timely reminder that while you can\u2019t control what happens on investment markets, you should always maintain control of your asset allocation strategy.<\/p>\n

That means being actively engaged in your investments and having a sound strategy that forms the backdrop for all your investing decisions.<\/p>\n

Review your portfolio<\/strong><\/h5>\n

The mid-year point is an opportune time to take stock of your investment holdings \u2013 but reviewing your portfolio should really be an ongoing exercise.<\/p>\n

It\u2019s particularly important to ensure your holdings remain aligned with your investing strategy, your tolerance for investment risk, and your long-term goals.<\/p>\n

The broad downturns on share markets this year may have caused some portfolio drift, depending on the structure of your investments.<\/p>\n

What does portfolio drift mean? Quite literally, it occurs whenever your investments gain or lose value because of market movements.<\/p>\n

Over time, and especially during periods of greater volatility, portfolio drift can cause your intended allocation to specific asset classes to move out of alignment.<\/p>\n

As a practical example, let\u2019s say you had an equal amount of your money invested into shares and bonds at the start of 2022.<\/p>\n

A 50:50 split between different assets is commonly known in investing as a balanced asset allocation strategy.<\/p>\n

Due to the recent falls on investment markets, your 50:50 assets split in January will likely have changed. It may now be closer to a 60:40 split.<\/p>\n

What can you do?<\/strong><\/h5>\n

If the structure of your investment portfolio has moved significantly out alignment with your intended strategy, you may need to undertake some rebalancing.<\/p>\n

Rebalancing is really about making adjustments to bring your portfolio back into line with your strategy.<\/p>\n

You have a couple of rebalancing options if you\u2019re a DIY investor.<\/p>\n

    \n
  • If you need to, you can sell assets in your portfolio and then use the proceeds to top up your allocation to other assets that have fallen in value or experienced a lower rate of growth.<\/li>\n
  • Or you can simply add more money into assets that have fallen in value while retaining your dollar exposure to the other assets in your portfolio.<\/li>\n<\/ul>\n

    There is another option, which does all the heavy lifting for you.<\/p>\n

    That is to invest into diversified (or multi-asset) managed funds or exchange traded funds (ETFs), which have set percentage weightings to different assets.<\/p>\n

    Professional portfolio managers rebalance these funds whenever their set investment allocation moves out of alignment, based on set tolerance levels.<\/p>\n

    Multi-asset funds are essentially ready-made portfolios, which enable investors to select higher or lower exposures to shares, bonds, and cash, depending on their appetite for risk.<\/p>\n

    But there\u2019s a key difference between how professional portfolio managers can readily rebalance a portfolio versus the average DIY investor.<\/p>\n

    Generally, rather than having to sell assets to keep their portfolio aligned, a portfolio manager will use cash inflows to buy additional assets.<\/p>\n

    This minimises turnover in a fund\u2019s portfolio and greatly reduces the need to realise any capital gains.<\/p>\n

    On the other hand, DIY investors choosing to sell assets to top up others will invariably trigger a capital gains tax event.<\/p>\n

    DIY investors also don\u2019t have the benefit of daily cash flows into their portfolio to top up underweight assets.<\/p>\n

    Staying balanced<\/strong><\/h5>\n

    Whether you leave it to the experts, or do it yourself, there are clear benefits in avoiding portfolio drift as much as possible.<\/p>\n

    A hands-off, set and forget approach to investing may sound good in theory, but it doesn\u2019t really stack up in practice.<\/p>\n

    Rebalancing your asset mix keeps you aligned to your chosen investment strategy, based around your risk tolerance.<\/p>\n

    Ignoring portfolio drift can be detrimental over time. As well as drifting off your chosen investment course, you could also find yourself being exposed to unintended investment risks.<\/p>\n

    \u00a0<\/p>\n

    \u00a0<\/p>\n

    \u00a0<\/p>\n

    By Tony Kaye, Senior Personal Finance Writer, Vanguard Australia
    \nvanguard.com.au<\/p>\n","protected":false},"excerpt":{"rendered":"

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