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Investment insights

The art of rebalancing

Investment success begins with an asset allocation that matches your goals and risk tolerance. But it doesn’t end there! Investing is a lifelong process. It is therefore important to reassess your portfolio at least every six months and where necessary, make adjustments.

Why do you need to rebalance your portfolio?

•	Many people build an appropriate portfolio gradually over time, but market movements or profit taking can cause appropriate portfolios to drift.
•	The portion of a portfolio devoted to riskier assets will grow faster due to higher returns. This makes an unbalanced portfolio more risky over the long term.
•	Rebalancing can help investors to achieve a more controlled equity exposure and a less risky portfolio.

So... What is stopping investors from rebalancing?

•	Rebalancing goes against our emotions: Our emotions tell us to let the winners run, but what’s hot today can be cold tomorrow.
•	Change is viewed as risky: But the status quo can also be dangerous for your portfolio. By trying to avoid risk, investors may end up increasing it!
The best way to rebalance is in a disciplined manner for example every six months, by buying assets which have fallen in price or selling assets which have risen in price.

Rebalancing Strategies

Periodic	–	pick a fixed schedule
Threshold	–	select a trigger point
Active	–	look at market conditions

Strategy	Pros	Cons
Periodic	Simple	Inflexible. Does not allow investor to be temporarily overweight asset classes or sectors that are expected to outperform over the shorter term
Threshold	More flexible than periodic rebalancing	May trigger a great deal of unnecessary buying and selling in volatile markets
Active	Allows investor to exploit short term market trends	Portfolio can be more risky and volatile.

Rebalancing has benefits, and costs. Investors should be mindful that selling existing investments in a rebalancing exercise will result in transaction fees and other costs. And, as with other investment decisions, investors should always keep in mind their investment objectives, time horizons, and risk appetites.

Source: Citibank N.A., Singapore Branch, Regional Wealth Management.

The Investment Insights section is for general reference and educational purposes only. Hypothetical scenarios presented are only to illustrate approaches to wealth management that are not and should not be relied upon as investment advice; each person’s individual situations may differ. Nothing contained in the material constitutes a recommendation for the purchase or sale of any security and/or currency. Although the statements of fact in this report are obtained from sources that Citibank consider reliable, we do not guarantee their accuracy and any such information may be incomplete or condensed. Any person considering an investment should seek independent advice on the suitability or otherwise of the particular investment. Investments are not deposits or other obligations of, guaranteed or insured by Citibank N.A., Citigroup Inc., or any of their affiliates/subsidiaries(unless specifically stated), or by any local government or insurance agency, and are subjected to investment risk, including the possible loss of the principal amount invested. Investors investing in investments denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Past performance is not indicative of future performance, prices can go up or down, Mutual Funds are not available to US Persons and may not be available in all jurisdictions. For a full explanation of the risks of investing in any investment, please ensure that you fully read and understand the relevant Product Disclosure Statement (PDS) prior to investing.

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