Is now the right time to refresh and rebalance your portfolio?

5th January 2016


In light of shoppers returning unwanted gifts to retailers Ian Forrest, investment research analyst at The Share Centre, examines whether now is the right time for investors to revaluate their portfolio holdings…

Many people are now in the process of returning to the high street to exchange Christmas gifts, especially items of clothing, which don’t quite fit them properly.

In exactly the same way, investors might benefit from taking a hard look at their shareholdings at the moment to see if they are still fit for purpose.

Those investments, which are in profit and remain good value can probably be put to one side but those that are making a loss, or have been flat lining for some time, may well merit closer inspection.

It is certainly worth recalling the original reason for buying them, and the timeframe which was envisaged to get a return at that stage.

Patience in investing is very important since history tells us very clearly that the best returns from shares invariably come from holding them for the long term and reinvesting dividends.

However, that’s not a cast iron rule with every company and investors should regularly review the performance to see if there has been a material change in the prospects for the business or the wider sector.

If things have changed, are the issues serious, long-term challenges or just temporary shifts in sentiment as some people decide to take profits?

For income investors a big cut in dividend payments, or news of a change in the company’s policy on future dividends would qualify as a material change.

For more growth-orientated companies increased competition, rising costs or an expected slowdown in underlying economic prospects may well cause the market to lower its expectations for earnings and sales growth.

As a general rule, cutting losses and letting profitable positions run is a good starting point. It is also worth considering whether any individual stock or sector has grown to comprise more than 10% of your overall portfolio.

If so, it may well be worth trimming back by moving into another stock in the sector, or increasing exposure to a different sector altogether.

The great thing about the stock market is that if one of your investments no longer fits, or has grown too big, there may well be an alternative, which is more suitable.

Leave a Reply

Your email address will not be published. Required fields are marked *