Part 9 of 10 of my series “From Saver to Investor” aimed at those thinking of investing for the first time.

“Keeping Your Portfolio on Track Without Losing Your Mind”

So you’ve built your portfolio and you’re invested now. You’re in the markets, congratulations, you’re already ahead of most people and now you feel ready to learn more about re-balancing. You’ve heard the big boys on TV talking about the importance of re-balancing their positions etc and it’s natural to assume this leads to more profits. Lets look into this and see if it’s the right thing for you to do.

Many investors consider re-balancing as essential maintenance for their portfolios.

What re-balancing actually is

Think of your portfolio like a pizza. You decided on 80% stocks, 20% bonds.
But over time, stocks shoot up. Now your “pizza” is 90% stocks, 10% bonds.

Risk crept up your stocks are now 90% of everything you own so it’s time to re-balance. You sell a little stock, buy a little bond. Back to your target mix.
It keeps your portfolio in line with your goals. Important to remember this, re-balancing isn’t about making money. It’s about reducing risk. You’re not increasing profits, you’re actually taking profits from your winners (the growth) and topping up your losers (the slower growers or non-growers).

How to do it easily

Here’s the simple rule: once a year is enough. Check your portfolio. Compare it to your original allocation (stocks vs bonds). Move a little around to hit your target mix. Done. No stress. No daily monitoring. No guessing.

Some all-in-one funds do this automatically. Vanguard LifeStrategy, HSBC Global Strategy etc, they re-balance for you. Set it up and forget it.

Why doing nothing most of the time is better

The most successful investors do the least amount of fiddling.

They don’t react to daily swings. They don’t chase headlines. They don’t tweak every month. Most of your portfolio’s work is happening quietly in the background. Re-balancing once a year keeps it on track. Everything else is noise.

The bottom line

Re-balancing isn’t complicated. It’s a gentle nudge done once a year. Ignore the rest. Your portfolio grows. Your risk stays in check. You sleep better at night. Of course, you don’t even need to re-balance if you’re happy with the new assignment of stocks/bonds or whatever is in your portfolio. This might be the case if you’re in the growth stage of your journey. You might choose to just keep letting the winners ride up and just leave the safer, slower growing portion of your portfolio for emergencies only.