When people think about investing, they often focus on choosing the “right” investments. But what happens after your portfolio has been built?
The reality is that your investments won’t stand still. Markets move every day, some investments perform better than others, and over time your portfolio can start to look very different from the one you originally agreed with your financial adviser.
This is known as portfolio drift, and it’s one of the reasons why regular reviews and rebalancing are so important.
What is an intended asset allocation?
When you first invest, your portfolio is usually built around a carefully considered mix of different types of investments. This is called your asset allocation.
It might include:
- Equities (shares)
- Bonds
- Cash
- Property or other alternative investments
The balance between these assets isn’t chosen at random. It’s designed to reflect your financial goals, your timescale for investing and, perhaps most importantly, the level of investment risk you’re comfortable taking.
For example, someone investing for retirement in 25 years may be comfortable with a higher proportion of equities, while someone approaching retirement may prefer a greater allocation to bonds or cash to help reduce volatility.
Markets move – and so does your portfolio
Once your money is invested, markets don’t stand still.
Perhaps shares have a particularly strong year while bonds struggle. If that happens, the value of your equity investments grows faster than the rest of your portfolio.
Over time, what started as a portfolio with 60% in equities and 40% in other assets could gradually become 70% or even 75% equities.
Nothing has been added or removed – it’s simply the result of market performance.
This gradual change is what advisers refer to as portfolio drift.
Why does portfolio drift matter?
At first glance, having more money in investments that have performed well might seem like a good thing.
However, it can also mean you’re now taking more investment risk than you originally intended.
Equities generally offer greater long-term growth potential, but they can also experience larger ups and downs than bonds or cash. If your portfolio has drifted towards equities, you could be exposed to more volatility than you’re comfortable with.
The opposite can happen too.
If your portfolio becomes weighted more heavily towards cash or lower-risk investments, you may reduce the potential for long-term growth and make it harder to achieve your financial objectives.
In other words, portfolio drift can quietly change the level of risk you’re taking without you even realising it.
What is investment rebalancing?
Rebalancing is the process of bringing your portfolio back towards its original target allocation.
This doesn’t necessarily mean making dramatic changes. It could involve:
- Selling a small amount of investments that have grown significantly.
- Investing more into areas that haven’t performed as strongly.
- Adjusting your holdings so your portfolio once again reflects your agreed investment strategy.
The aim isn’t to maximise short-term returns.
It’s to keep your investments aligned with your long-term goals and your appetite for risk.
Rebalancing isn’t about reacting to the news
One common misconception is that rebalancing means constantly buying and selling investments based on the latest headlines.
It doesn’t.
Trying to predict what markets will do next is extremely difficult, even for professional investors.
Rebalancing is based on discipline rather than emotion. Instead of asking, “What do we think markets will do tomorrow?”, it asks, “Does this portfolio still match the strategy we originally agreed?”
It’s a measured, long-term approach rather than a reaction to daily market movements.
Why selling successful investments feels uncomfortable
This is often the hardest part.
If one investment has performed exceptionally well, selling some of it can feel counterintuitive. After all, it’s making money – why would you reduce your holding?
But investing isn’t about chasing whichever asset has recently performed best.
By trimming investments that have grown significantly, you’re helping to prevent one part of your portfolio from becoming too dominant. At the same time, you’re maintaining the level of risk that’s appropriate for your circumstances.
It’s less about predicting what will happen next and more about keeping your financial plan on track.
How often should a portfolio be reviewed?
There’s no one-size-fits-all answer.
Many investors benefit from having their portfolio reviewed at least once a year, although more frequent reviews may be appropriate depending on market conditions or if your personal circumstances change.
A review isn’t just about checking investment performance.
It’s also an opportunity to ask important questions:
- Has your attitude to risk changed?
- Are you approaching retirement?
- Have your financial goals evolved?
- Has your portfolio drifted away from its intended asset allocation?
Regular reviews help ensure your investments continue to support the life you’re planning for.
Keeping your investments working for you
Successful investing isn’t simply about picking good investments and leaving them forever.
As markets move, portfolios naturally change too. Without regular monitoring, it’s easy for your investment strategy to drift away from the balance you originally intended.
Rebalancing helps keep your portfolio aligned with your goals, your timescale and your tolerance for risk. It’s a disciplined approach that removes much of the emotion from investing and helps ensure your portfolio continues working as intended.
If you’re unsure whether your investments still reflect your objectives, or you haven’t reviewed your portfolio for some time, speaking with a financial adviser can help you understand whether your current asset allocation is still right for you.
