How to Balance Your Investment Portfolio

Whether you’re just beginning your investment journey or you’re a seasoned investor looking for tips on how to balance your portfolio and make the most out of your investments, you’re in the right place.

A balanced portfolio is ultimately key to a successful investment journey. It involves investing in a range of asset classes, from alternative to traditional assets, that align with your time horizon and risk tolerance.

But why is a balanced portfolio so important, and more importantly, how do you balance your investment portfolio? In this blog, we explore:

• What a balanced portfolio is
• Why a balanced portfolio is important
• How to balance your portfolio
• How to rebalance your portfolio
• An example of a balanced portfolio

What is a Balanced Portfolio?

In short, a balanced portfolio is an investment strategy that diversifies assets across a range of asset classes - for example, stocks, bonds and cash equivalents. This can ultimately help to mitigate risks and optimise returns.

If you’re looking to achieve a balanced portfolio, you’ll typically need to withstand short-term fluctuations and accept moderate growth over time.

It’s a great approach if you have a long-term outlook - for example, if you’re saving for retirement. The main goal of a balanced portfolio is to create a combination of investments that can withstand economic uncertainty and market fluctuations, and continue to grow steadily over time.

Why is a Balanced Investment Portfolio Important?

A balanced portfolio can ultimately protect you against risk, ensuring you make the most out of your investments. Diversifying your portfolio spreads the risk across the different asset classes.

This can reduce the impact of market fluctuations and volatility on your portfolio, keeping your investments as secure as possible. This means that if one investment were to underperform, your other investments can offset the losses - and you can preserve your capital.

In turn, this means that you can continue receiving consistent returns from your investments in the long term. You can allow your profits to grow and stay protected against market downturns.

Regularly balancing your portfolio and tailoring it to meet your goals and risk tolerance can ensure that your strategy remains aligned with your goals. So, whether you’re saving for retirement or simply building your wealth, a balanced approach can keep you on track.

Steps to Take to Balance Your Portfolio

Let’s explore some of the key steps to take if you’re looking to achieve a balanced portfolio:

Determine Your Risk Tolerance

First things first, you will need to determine your risk tolerance - how much risk you’re willing to comfortably accept. Consider your financial goals - how long are you willing to wait to access your funds?

Are you comfortably waiting a long time and riding out fluctuations, or are you looking for short-term gains?

If you’re looking for minimal risk, consider preserving your capital and focusing on defensive asset allocation.

However, if you’re simply looking for higher returns, you may opt for a more aggressive strategy and seek higher returns through more exposure to equities.

Understand The Different Asset Classes

• Stocks
• Bonds
• Cash/ Cash equivalents
• Real estate
• Commodities (e.g gold and silver)
• Alternative investments (e.g non-traditional assets)
• Currency
• Collectables (e.g art, whiskey and, rare coins)

Stocks and bonds are a popular choice. Stocks refer to a percentage of ownership in a company - and can lead to significant capital appreciation over time. Equities may be a little more volatile, but historically, they outperform many other asset classes in the long term.

Bonds, on the other hand, are debt securities issued by companies or governments. When you invest in bonds, you will receive a fixed income through regular interest payments.

However, this option typically offers lower returns than stocks. They’re a great choice if you’re looking for stability and capital preservation. Ultimately, the right choice for you depends on your time horizon, financial goals and risk tolerance.

Allocate Your Assets

Now it’s time to allocate your assets - there are two key methods to consider:

Strategic Asset Allocation - This involves setting target allocations for each asset class whilst considering your goals and risk tolerance. For example, a conservative investor looking for minimal risk may choose to allocated 60% on bonds, 30% on stocks, and then 10% on cash equivalements.

Tactical Asset Allocation - This involves amending your portfolio in response to market changes or predictions. You’ll need to regularly assess your portfolio with the aim of profiting from short-term opportunities and eliminating arising risks.

Finding the right balance is key when it comes to asset allocation. Getting the balance right can ensure your portfolio can withstand market changes - and ultimately, increase the chances of investment success.

Diversify Your Portfolio

Allocating your assets is only part of your investment journey - one of the most impotant aspects is diversification. This essentially means dividing your funds across different assets to minimise risk.

For example, if you have allocated 70% of your money to stocks and bonds, consider diversifying your portfolio to include other assets such as alternative investments or cash equivalents.

Whether you invest in corporate bonds, government bonds, mutual funds or exchange-traded funds (ETFs), the key takeaway is to not put all your eggs in one basket. Many investors choose to include alternative investments such as art investments in their portfolios.

Art investment can be a great hedge against inflation and is known for its market stability during economic downturn. With Grove Gallery, you can generate returns of up to 12% per year.

Rebalance Your Portfolio Regularly

Revisit your asset allocation regularly, and consider what may need changing. This involves assessing all of your long-term accounts and ensuring they still align with your ideal percentages - and making the relevant changes if they don’t.

For example, consider selling some of the shares in the asset classes in which the percentages are higher - or spend more money in assets in which the percentage is lower. If you’re conscious of risk, you could rebalance your portfolio every quarter. However, if you’re a long-term investor, one a year may work best.

An Example of a Balanced Portfolio

• 50% into stocks for growth, spread across different industries and regions
• 40% into bonds for stability and regular income, including both government and corporate bonds
• 5% into real estate for diversification and profit
• 5% into art for stability and appreciation

Key Takeaways

• A balanced portfolio involves diversification across different assets to manage risk
• You should assess your goals and risk tolerance to determine the right combination of assets
• You should regularly review and rebalance your portfolio to ensure it still aligns with your financial goals
• Alternative assets such as art investment can help you diversify your portfolio
• One size does not fit all when it comes to building your investment portfolio