Rebalancing your portfolio

I am in need of a review of my investment portfolio, which I have held for six years. I have invested 80% into local and international equities and 20% into bonds. I have always maintained the original fund selections as they were regarded as top performing funds in their sectors at the time of buying. I am 66 years old and the portfolio, which is valued at £90,000, is my entire wealth, ignoring small deposit accounts totalling £3,000 that I have. Is the balance of my investment correct and what improvements can I make?

Three issues stand out when considering your investment requirements:

The low amount you have on deposit. The amount you hold in cash is approximately 3% of your overall wealth. While we all have different requirements, at the age of 66, I would generally advise a much higher percentage is kept liquid, i.e. in cash.

Factors you must consider are the financial impact if you were to become seriously ill for a long period or, even worse, die! While I do not wish to create panic for you, you must ensure that you and your family have adequate cash at hand should one of these events occur, i.e. you must prepare for the worst.

A good benchmark is to have one year's expense requirements in cash as a minimum. For example, if you generally spend Lm10,000 per annum then this amount should be kept in cash as a minimum.

The high percentage you have in equities. Ignoring your personal attitude to risk, as a rule of thumb, the older you get, the more bonds/cash and the fewer equities one should hold. A good guide is to say that the percentage in bonds and cash should match your age.

In your case, you should look to weight your portfolio at 66% in bonds and cash. This therefore suggests a large imbalance against your present split of only 25% in these assets.

At present, the portfolio appears to be of a high-risk nature and you should reconsider the balance between bonds and equities.

Lack of investment decisions. In the past six years you indicate that no fund switching has occurred. The likelihood is that some of the fund managers that you originally invested with will have moved companies and will now be running different funds. It is very important to review whether to remain invested in a fund when the manager moves on as performance can suffer, at least in the short term.

At the same time, the equity markets you invested into six years ago may not be appropriate now. For example, are you invested solely into US and European markets or are you taking advantage of the potential upside in the emerging markets of India, China, etc.?

Far too often investors leave their portfolios invested for long periods of time without rebalancing the asset allocation. This is very dangerous as opportunities are missed and, at the same time, investors are left overweight or underweight in equities.

I suggest you seek professional investment advice on the funds that you have and whether they still meet your investment objectives.

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 or e-mail mh@hollingsworth-int.com.

www.hollingsworth.eu.com

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.