YOUR PORTFOLIO
/ REINVESTING /
Investors need to think carefully about how to
reinvest the proceeds of any assets they sell if they
want to avoid going back to square one,
writes Emily Perryman
D
ECIDING WHEN TO SELL FUNDS OR EQUITIES CAN BE TRICKY,
but so too is figuring out what to do with the cash received from these
investments.
In many instances the sale of an asset can skew the risk weighting
of a portfolio, meaning it no longer matches the investor’s appetite
and capacity for risk.
Adrian Lowcock, investment director at Architas, says this will usually happen
if the investment made up a large proportion of the portfolio and/or was at the
extremes of the risk scale – either very high or low risk.
“The more extreme it is, the more significant the impact will be,” he explains.
The simplest way to return a portfolio back to its original risk weighting is
to buy an investment with exposure to the same asset class, region, industry
and strategy. But changes may also need to be made elsewhere in the portfolio
to reflect the fact that each investment could have performed differently over
time. If a fund has risen strongly in comparison with the rest of the portfolio, its
weighting will have increased.
Lowcock suggests a good starting point is to determine the asset allocation
model from which the original portfolio was built.
“This will need to be fairly detailed, covering all the major global equity asset
classes and exposure to smaller companies. An asset allocation model doesn’t
reflect the changes of the riskiness of each asset class but will help you to identify
where the profits have appeared and trim your exposure to those areas,” he says.
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