The Importance of Rebalancing Your Portfolio: When and How to Do It

As an investor in Singapore, you’re likely familiar with the excitement of seeing your investments grow. But have you ever wondered if your portfolio’s growth is still aligned with your original goals? With market trends constantly shifting, especially in a city-state that is as deeply connected to global financial markets as Singapore, it’s important to ensure your portfolio stays balanced. This is where rebalancing comes in, a crucial practice for keeping your investments aligned with your risk tolerance and financial objectives.

So, what exactly is portfolio rebalancing? Why does it matter, and when should you do it? Let’s take a closer look at how you can use rebalancing to maintain a healthy and growth-focused portfolio, especially in Singapore’s fast-moving investment scene.

What Exactly is Portfolio Rebalancing?

Portfolio rebalancing is the process of adjusting the weightings of assets in your portfolio to return them to your original target allocation. Over time, the performance of different assets will cause your portfolio to shift. For example, if you initially aimed for 60% stocks and 40% bonds, a surge in stock prices might lead to 70% of your portfolio being in stocks. This shift increases your risk exposure, and rebalancing helps you bring it back in line with your intended strategy.

In a place like Singapore, where sectors such as real estate and tech can experience rapid growth, rebalancing ensures that you don’t end up with an over-concentration in one area. The goal is to keep your portfolio diversified, ensuring you're not taking on too much risk or missing out on potential growth in other asset classes.

Why Rebalancing Your Portfolio Is Key

As life changes—whether you’re nearing retirement, planning a major purchase, or navigating a more uncertain market—rebalancing becomes even more important. A few years ago, you may have been more comfortable with a higher risk profile, investing heavily in stocks or growth assets. But as your financial priorities shift, you might now lean towards safer, more stable investments like bonds or cash equivalents. This is especially critical for those in Singapore managing their CPF or SRS savings, where the focus often turns to securing long-term stability as retirement approaches.

Rebalancing ensures that your portfolio adjusts alongside these life transitions. By gradually shifting from riskier assets into more conservative ones, you protect the wealth you've accumulated and minimize the impact of market volatility. This process is not just about managing risk; it’s about aligning your investments with your evolving goals. Whether it’s preparing for retirement, funding your children’s education, or preserving your capital for a large purchase, rebalancing keeps your portfolio in tune with where you are in life, ensuring that your financial strategy continues to support your needs effectively.

When to Rebalance: Trigger Points for Singaporeans

There’s no one-size-fits-all answer to how often you should rebalance your portfolio, but certain trigger points can help you decide when it’s time to act. Here are a few common scenarios for Singaporean investors:

Scheduled Rebalancing

Many investors choose to rebalance their portfolios at regular intervals, such as annually or semi-annually. This method is straightforward and helps keep your portfolio in check without constantly monitoring the markets.

Significant Asset Allocation Shifts

A general rule of thumb is to rebalance when one asset class drifts more than 5% away from your target allocation. For example, if you started with 60% equities and 40% bonds and your equities now represent 70%, it’s time to rebalance. This prevents your risk profile from changing too much due to market movements.

Market Movements

After major market events, such as a stock market rally or correction, your portfolio may be far from your intended allocation. This is particularly important for Singaporean investors who may hold assets heavily impacted by global market trends, such as tech stocks or commodities. For example, the tech sector has seen explosive growth, and if a large part of your portfolio is invested in Singaporean or global tech companies, rebalancing after a surge may help reduce risk.

Life or Financial Changes

When your financial goals or situation changes—such as nearing retirement or reaching a new life milestone—it’s a good time to reconsider your asset allocation. If you are closer to retirement, for example, you might want to reduce risk by increasing your allocation to bonds or other conservative investments.

How to Rebalance Your Portfolio in a Smart Way

Rebalancing doesn’t need to be complicated, but it should be done thoughtfully. Here’s a simple guide to rebalancing your portfolio effectively:

Set Your Target Allocation

Start by reviewing your financial goals and desired risk level. Investors typically aim for a diversified portfolio, which could include local stocks, global equities, bonds, real estate, and other asset classes. Your target allocation will depend on your investment horizon and risk tolerance.

Assess Current Holdings

Take stock of your current investments to see how far your portfolio has drifted from your target allocation. Platforms like Longbridge make it easy to track your asset mix and identify areas where your allocation may need adjustment, helping you stay on top of your portfolio's performance.

Buy and Sell to Adjust

To rebalance, sell assets that are over-weighted in your portfolio and use the proceeds to buy those that are under-weighted. For example, if your stock allocation has grown too large, you would sell some of your stocks and buy bonds or other conservative investments to restore balance.

Minimize Costs

Be mindful of transaction fees and other costs, which can eat into your returns over time. Many platforms now offer low or zero-fee trades, so consider using these services to reduce the impact of frequent trading on your overall returns. Keep an eye on brokerages in Singapore that offer competitive fee structures.

Monitor Tax Implications

Although Singapore doesn’t tax capital gains on local investments, if you’re investing in foreign markets, make sure to consider potential tax implications. Always review any applicable foreign tax obligations when selling and buying assets.

Conclusion: Stay on Track with Rebalancing

In Singapore’s fast-paced investment landscape, regularly rebalancing your portfolio is crucial for managing risk and ensuring your investments stay aligned with your financial goals. Whether you're investing in local markets, global equities, or a mix of real estate and bonds, rebalancing is the key to staying on track. By making small adjustments periodically, you can avoid unnecessary risk, capitalize on market opportunities, and keep your portfolio working towards your long-term objectives.

If you haven’t checked your portfolio’s balance in a while, now might be a good time to start. Rebalancing doesn’t have to be complicated, but it’s one of the most important things you can do for your financial health. Thinking about rebalancing but unsure where to begin? Explore our investment solutions today to see how we can help you tailor a rebalancing strategy that works for you!