Despite the time intensive process involved, advisers should be rebalancing client portfolios semi-annually or annually to effectively manage risk and maintain value, IOOF has said.
IOOF head of product Chris Weldon said the increased risk and volatility that comes with unchecked client portfolios makes rebalancing an important part of portfolio management and crucial for demonstrating the value of advisers.
“Moving your clients out of their best performing investments may not seem like a popular move. Doing just this, however, will not only lock in profits (before a correction), but also steer clear of dangerous investing habits such as trying to time the market,” he said.
“Rebalancing will also help save clients from their own worst instincts. A defined rebalancing strategy – and informed clients – takes the emotion out of investing, stops your clients chasing falling stocks or hanging on to stocks which have performed well too long.
“For most advice practices portfolio rebalancing is a time-intensive responsibility. Making the most of technology available on platforms and wraps … automates portfolio management and frees up time for you to focus on higher value client engagement.”
The ideal time-frame for rebalancing portfolios is semi-annually or annually according to a 2010 Vanguard paper, he said. However an alternative is to rebalance when asset weightings reach certain thresholds, he added.
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