Heading in the right direction?: A balanced portfolio means having a mix of different assets

Are you heading in the right direction: A balanced portfolio means having a mix of different assets

For investment success, a well-balanced portfolio is essential. You can grow your wealth without taking on unnecessary risks. 

The best balance refers to having multiple assets (shares, bonds and commodities, as well as property) spread out across various countries and economic sectors. This way you won’t be too vulnerable if one asset falls. 

The last year was a wild ride for the financial markets. 

While some investments are gaining in value while others remain stagnant, there have been some that fell behind. This means that what was once a well-balanced portfolio may now look skewed or haphazard. 

Now is the time to review your possessions and get ready to recalibrate for next year. 

Failure to balance could result in you taking on more risk than you intended, which can hinder your ability to grow your wealth for the new year. 

Annabel Brodie Smith, director of trade organization the Association of Investment Companies, says that it is sensible for investors take inventory of their portfolios at year-end. “Rebalancing” means that you sell off your top performers and buy more funds that are underperforming to create a balanced and diversified portfolio that meets your needs.  


This year, financial markets were affected by rising inflation, global politics and the effects of pandemic lockdowns on the economy. 

However, the effect hasn’t been evenly felt: certain types of assets are likely to finish the year with a huge high and others will be well below. 

For example, the FTSE100 index of the biggest UK-listed companies is up 17 per cent, and the S&P500 index of US companies is up by 22 per cent. The Hang Seng index in Hong Kong is now down 14%.

While bonds have suffered in the past year, equities overall have done better. Emerging markets equities are in the doldrums, while commodities and real estate are ending the year up.

As a result, you may find that equities – and US shares in particular – make up a much greater proportion of your portfolio than at the start of the year, while bonds and emerging markets make up a smaller slice.


First, decide how a balanced portfolio should look for you. There is not one size fits all solution. 

It is possible to have a balanced diet that applies across the board. There are standard guidelines for what amount of each food group you should eat every day. 

A balanced portfolio is not the same for everyone. Everyone has different goals and an appetite for risk. 

Many people decide to hire a financial planner to help them make their allocations. Another alternative is to use an online digital advice service known as a robo-adviser – the likes of Nutmeg, OpenWealth and Wealthify. 

They ask you a set of questions that will help determine your risk tolerance and recommend the best investments.

The correct mix of shares and money you purchase and sell yourself is entirely up to you. To get a general idea, you can look at model portfolios created by multi-asset funds or robo-advisers.

Nutmeg offers five portfolios for different risk levels, ranging from very low to extremely high. 

Only 10% of the portfolio is at risk, with shares being more risky than bonds. 

It is almost 100% risky to invest in shares. Shares, although presenting higher risks, tend to yield better returns. Most investors look for something somewhere in the middle of these extremes. 

The Liontrust Balanced Fund, for example, aims to achieve growth over five year periods while taking on moderate risk. This portfolio consists of shares (77%), bonds (14%), and a mixture of other assets (the rest).


Two options are available to investors. Rebalancing can be achieved by buying back stocks and funds with a higher value over the past year or selling those which have declined in price. 

It can be counterintuitive for winners to be sold, but Dzmitry lipski, chief of fund research at Wealth Platform Interactive Investor, thinks there’s logic. 

He says, “Today’s winner won’t necessarily remain on top,” This is why it is so important to maintain discipline. For example, if you let your winners keep on running unchecked, you could end up with a portfolio dominated by tech stocks, or any other current ‘must have’ – and that can put you in a high risk position.’ 

Another option is to slow down the process of rebalancing. You might redirect your investments in the following months toward assets and sectors that currently make up less or more of your portfolio. Then, your portfolio will naturally balance over time. 

It is vital to keep an eye on your portfolio, particularly in uncertain times like the ones we are experiencing, but rebalancing too often can be costly. 

Some investing platforms charge you every time you buy and sell – and there may be tax implications as well, so small tweaks to your portfolio should be avoided.

Lipski recommends setting a tolerance level of imbalance that you are willing to accept before buying or selling. Lipski suggests setting a tolerance level of around 10% before you buy or sell. 

He states, “That would mean that, for instance, if 25 percent of your portfolio is in UK equities and you feel comfortable there, then you can rebalance only if your UK-equities portfolio exceeds or falls below 27.5%.”


Different investors will require different levels of rebalancing. 

Darius McDermott is the managing director of investment platform Chelsea Financial and says that after a year where equities outperformed bonds in value, it’s most likely that investors will need to buy more bonds to balance.

‘You could add to some defensive bonds like Artemis Targeted Return Bond, TwentyFour Absolute Return Credit, or a bond fund that has the flexibility to adapt to any environment like Aegon Strategic Bond or Jupiter Strategic Bond,’ he suggests. In the three-year period, Strategic bond funds have risen by 31% and 16% respectively. 

He suggests that you could look at other asset types, like gold, infrastructure, and property. 

These funds can provide diversification for a portfolio. He says that the funds that we enjoy covering these asset classes are Ninety One Global Gold (First Sentier Global Listed Infrastructure) and TR Property Trust respectively.


You can rebalance your money by investing in funds and sectors that are not performing as well as others. 

You are in a sense rewarding subperformance. It is essential to ensure that investments have done badly because they have simply fallen out of favour and will likely recover, rather than because of poor management or another systemic flaw that means they will continue to weigh on your investments.

It is not a good idea to buy more or to keep an investment that is underperforming. 

Laura Suter from wealth platform AJ Bell is head of personal finances. 

“When buying a fund, you should know what market conditions it will outperform and where they may lag the market. This information can also be used to identify bad managers and help you eliminate them.


Not only are stock market swings a reason for rebalancing, but so is the risk of losing your capital. Our investment goals and risk appetites change over time and may require us to adjust our portfolios. McDermott states that you might want to begin taking less risk if your retirement plans include income. 

Suter says that it is not possible to put together a strategy and then forget all about it. Many investors will be able to invest decades in the past and have not modified their strategy. It is crucial to remember that you do not have the 30-year-old portfolio while you are 60 years old. 

Your investment strategy will be strengthened if you have the ability to regularly review your portfolio and adjust as needed. 

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