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How to invest – Rebalance Your Investments

By Spectrum IFA
This article is published on: 9th October 2019

09.10.19

I previously discussed how asset allocation is an investment strategy that can limit your exposure to risk. As you get further along your journey of being an investor, you need to understand how to rebalance your portfolio to keep it in line with your investment objectives.

Rebalancing is bringing your portfolio back to your original asset allocation mix. This may be necessary because over time, some of your investments may become out of alignment with your investment objectives. By rebalancing, you will ensure that your portfolio has not become overexposed to one asset class and you will return your portfolio to a comfortable and more acceptable level of risk.

For example, let’s say that your risk tolerance determined that equities should represent 60% of your portfolio. However, after recent market fluctuations, equities now represent 75% of your portfolio. To re-establish your original asset allocation mix, you will either need to sell some of your funds or invest in other asset classes.

There are three ways you can rebalance your portfolio:

1. You can sell investments where your holdings are overexposed and use the proceeds to buy investments for other asset classes. With this strategy, you are essentially taking the profits that you have made and reinvesting it into a more cautious fund.

2. You can buy new investments for other asset categories.

3. If you are continuing to add to your investments, you can alter your contributions so that more goes to the other asset classes until your portfolio is back into balance.

Before we rebalance your portfolio, we would consider whether the method of rebalancing we agree to use would entail transaction fees or tax consequences for you.

Depending on who you speak to, some financial experts advise rebalancing at regular intervals, such as every six or 12 months. Others would recommend rebalancing when your holdings of an asset class increase or decrease more than a certain preset percentage. In either case, rebalancing tends to work best when done on a relatively infrequent basis.

Shifting money away from an asset class when it is doing well in favour of an asset category that is doing poorly may not be easy. But it can be a wise move. By cutting back on current strong performers and adding more under performers, rebalancing forces you to buy low and sell high.

To discuss further how rebalancing can help your existing investments, please contact me either by email emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72.

How to invest – What Is Asset Allocation?

By Spectrum IFA
This article is published on: 30th September 2019

30.09.19

If you read my previous article, I discussed the importance of diversification in your portfolio and how it is a strategy that can limit your exposure to risk. Another strategy is through asset allocation.

Asset allocation involves dividing an investment portfolio among different asset categories, such as equities, bonds, property, commodities and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

TIME HORIZON
Your time horizon is the expected number of months, years, or decades you will be investing to achieve a particular financial goal. If you have a longer time horizon, you may feel more comfortable taking on a riskier or more volatile investment, because you can wait out slow economic cycles and the inevitable ups and downs of the markets. However, if you are saving for a property or a car, you are less likely to want to take on risk as you have a shorter time horizon.

TOLERATE RISK
I have spoken in more detail about risk, here. However, to summarise, risk tolerance is your ability and willingness to lose some (or all) of your original investment for greater potential returns. More adventurous clients, or those with a high tolerance for risk, are more likely to risk losing money in order to get better returns. My more cautious clients, or those with a low-risk tolerance for risk, are more likely to prefer investments that will preserve the value of their original investment.

THE IMPORTANCE OF ASSET ALLOCATION
By including asset categories with investment returns that move up and down under different market conditions within a portfolio, you can protect against significant losses. Historically, the returns of the three major asset classes (cash, equities and bonds) have not moved up and down at the same time. Market conditions that cause one asset class to do well often cause another asset class to have average or poor returns. By investing in more than one class, you will reduce the risk that you will lose money and your portfolio’s overall investment will have a smoother gradient. If the return in one asset class falls, you could be in a position to counteract your losses with better performance in another asset class.

If you are looking to start investing or review the asset allocation in your existing investments, please contact me either by email emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72

The Spectrum IFA Group Expands in Holland and Belgium

By Spectrum IFA
This article is published on: 26th March 2014

The Spectrum IFA Group are delighted to announce that David Elkan has joined the office in Holland.

David has worked in Financial Services for the past 26 years covering all aspects of financial planning and investment advice. Initially working within a large offshore brokerage in South East Asia, David then setup his own business in 2002 advising expat clients worldwide.

Commenting on this recent appointment, The Spectrum IFA Group’s CEO, Michael Lodhi commented “We are delighted to welcome David into the team to advice clients in Holland and Belgium. His appointment underpins The Spectrum IFA Group’s commitment to extend our range of services and advisers in Europe and to provide expatriates with a wide range of specialist financial advice”.

The group has been rapidly expanding within Europe over the past few years and this is the third new appointment for The Spectrum IFA Group within the month of March. Michael continues to say, “It is clear that our services are badly needed by the expatriate community in Europe and we are committed to providing this much needed professional advice”.