Portfolio rebalancing

At Elston we believe that the strategic asset allocation decision – which takes into account an investor’s risk tolerance, time horizon and financial goals – is a crucial decision in the portfolio construction process. This is because asset allocation is ultimately a major driver of the variation of returns for a given portfolio. While all investments carry some level of risk, typically the higher the potential return the higher the risk too.

Due to potentially significant differences in the performances of the underlying investments across the various asset classes, it is possible that over time a portfolio will drift substantially from its original strategic asset allocation.

While understandable that investors wish to maximize returns, following a period of outperformance by growth assets an investor’s portfolio could be exposed to the risk of future losses greater than they are comfortable with. Conversely, following a period of weak performance from growth assets the investor’s portfolio could be at increased risk of not achieving the long term return requirement needed to meet their financial goals.

It is therefore important that investors review their portfolio and strategy periodically, rebalancing their portfolio as required to ensure risk and return characteristics consistent with their stated long term goals and objectives.

Obviously no universally optimal rebalancing strategy exists, and practical considerations such as the transaction costs associated with each trade executed as well as potential tax consequences cannot be ignored.


If you would like more information please call 1300 ELSTON or email info@elston.com.au and an adviser will be in touch.

WARNINGS AND DISCLOSURES: This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.

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