Rebalancing is the process of adjusting your investments between different types of assets. It’s best explained by an example.

Imagine you had originally bought a portfolio of investments, split 50:50 between company shares and bonds.  (See the left-hand bar on the chart above).

What happens next?

Roll forward one year, and perhaps the shares have grown by 30%, and the bonds by 6%.  (See the middle bar on the chart).

If you took no action, your portfolio is now weighted 55:45 between shares and bonds.

If you chose to rebalance your portfolio back to 50:50, you would need to sell shares and buy bonds.  As you can see on the right-hand bar on the chart, your portfolio has grown, but having rebalanced, you are back to your original 50:50 split.

How do I rebalance my investments?

Many multi-asset funds rebalance their portfolios on their investors’ behalf, in order to stay within certain target percentages of shares, bonds and other assets.

If you invest directly in shares yourself, you’ll need to perform this rebalancing work manually every so often if you wish to maintain a diverse portfolio.

Moneycube can help you decide the right asset split for your situation, and how to choose or adjust your portfolio to get there.

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Note: This is an initial indication to help you picture your money. Remember that with investments it is not possible to know for certain what returns you will achieve. Please note the investment warnings at the bottom of the page. This is the approximate before-tax return on an investment which grew at 6% over 5 years.