im Portfolio Perfect start to the year: Re-balancing in the portfolio

Last Updated: 11. Januar 2024By

Just a few days ago, the new stock market year 2024 began. The year 2023 was once again a difficult year for the stock market. Your personal annual performance was extremely dependent on the selection of individual stocks.

My practical tip for the beginning of the year for you: Especially after strong price fluctuations, as seen in many places last year, it is very useful to occasionally reallocate your portfolio. Well-performing positions have gained weight in the portfolio and poorly performing positions have decreased in weight.

Through a so-called re-balancing, the original weight can be restored. More on this topic later. First, another thing: At the beginning of every investor’s career, the consideration of an investment strategy or at least the consideration of which asset classes and to what extent to invest is based on their respective risk mentality and personal goals and desires.

The latter is also referred to in the technical language as asset allocation. This term essentially means the allocation of assets. If you want to act conservatively on the stock market, the 70:30 strategy is a good choice. You invest 70% of your capital in relatively safe investments and 30% in more speculative investments.

You should always pay attention to the balance in your portfolio. If the stock market is doing well, the speculative positions will outperform and the conservative investments will lag in terms of value. After twelve months, it can happen that your portfolio has reached a 50:50 ratio even without active reallocation.

Due to the high price gains, the speculative values together make up 50% of the portfolio weight. This is when you have to decide whether you want to consciously invest more aggressively or if you can sleep more peacefully with the 70:30 strategy.

If that’s the case, you have to take profits on the speculative positions (i.e. sell parts of these positions) and invest the free capital into more conservative positions. This brings us back to re-balancing.

If you don’t do this, your portfolio structure will no longer be recognizable after three years at the latest. Then you have a random portfolio. An unexpected stock market development can catch you off guard. Therefore, I recommend thoroughly reviewing your portfolio at least once a year.

How to restore the balance If you want to stay true to your asset allocation, you can liquidate a portion of your speculative positions. You can do this, for example, by completely selling individual positions or making partial sales.

Completely selling individual positions means selling the entire number of shares of a company in your portfolio. However, if you still consider all companies assigned to the speculative part of your portfolio to be promising, partial sales are a good option. This means selling a portion of the shares of one or more companies.

Sales or partial sales in the speculative part of your portfolio are one way to restore balance. But there is also a second option: you can increase the conservative part of your portfolio. This will ultimately restore the previous balance in your portfolio.

Consistency is key when re-balancing No matter how you implement re-balancing within your portfolio, it is important to remain consistent, just like with any other investment decision. Choose a fixed date (e.g. at the turn of the year) and a portfolio weight that is suitable for you.