COVER STORY
strategy . You ’ ll also pay more in transaction fees to trade shares when you come to rebalance . Blair argues that it ’ s better to find a good fund and back it with conviction . He doesn ’ t even hold individual shares in his personal portfolio because he “ doesn ’ t have the skill set ” to pick them . “ I certainly wouldn ’ t buy a single stock , because there ’ s too much idiosyncratic risk there , especially for a novice investor . No matter how much you think they know the company , even professional fund managers don ’ t always get it right .”
Playing with fire It ’ s common for investors to fiddle with portfolios , making small changes that don ’ t have any impact . Some do this for no other reason than they enjoy it , but Rowe warns this adds little value and may even destroy it . “ The reason people do stuff like swapping in and out of funds is because it ’ s more exciting ,” he says . “ If you want excitement , go horse racing – your money ’ s too important for this . If you haven ’ t got the knowledge or access to the information , it ’ s easy to make mistakes .”
Portfolio review checklist
Review your portfolio once a year on the same date Don ’ t rebalance just for the sake of it Consider whether portfolio drift has led to you taking on more risk than you are happy with Ask yourself if you ’ d buy the same funds today More funds doesn ’ t mean more diversification – five to 10 is plenty Check the underlying investments in your funds for overlap Consider passive funds if you don ’ t have the time or knowledge to research active ones Consider holding a single multi-asset fund and let the manager do the rebalancing
Eye on the prize Blair says markets and individual funds need to perform quite differently from one another for weightings to look different . “ Why do we rebalance ? Because we want our weights to move back to some form of target ,” he says . “ That target helps us understand the risk and volatility
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