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Portfolio re-weighting is an essential risk management process that every investor should use. But what is portfolio re-weighting and why should you do it?
Portfolio weighting describes the percentage of an investment in a portfolio – usually by asset class. For example, a typical balanced fund will have around a 60 per cent weighting in growth assets and 40 per cent weighting in defensive assets.
As time passes, portfolios change as different investments perform better or worse than others. These returns change your portfolio weightings which means your portfolio may no longer align to your chosen risk profile, potentially exposing you to more or less risk than you intended.
Re-weighting means your portfolio is shifted back to your original risk profile.
Another reason you may want to re-weight is that your risk profile has changed. As we get older and our circumstances change so does our tolerance for risk.
If you are 30 years old and planning 35 years ahead for retirement, you will probably be happy to accept greater risk, as short-term volatility can be tolerated in order to achieve your goals. On the other hand, if you are nearing retirement, you’ll probably not want to risk losing your money as you don’t have the luxury of time to recover from losses.
Understanding what type of investor you are, and therefore what types of investments are most suitable to you, is all about your personal circumstances and your attitude towards investment risk.
The IOOF Risk Profiling tool has been developed to help you better understand what sort of investor you are.
IOOF Risk profiling tool
If you are a member of IOOF Employer Super who has selected the ‘Choice’ option you now have access to a new feature via IOOF Online that allows you to re-weight your asset allocation efficiently and quickly. Previously, if you wanted to reduce or increase your risk exposure you had to make several transactions. Now you can re-weight both managed funds and listed investments with one instruction.
If you are a MySuper member and have not yet made an investment choice you can do so by completing the switching instruction form.
We recommend you seek financial advice to help you choose, review and re-weight your investment portfolio on a regular basis.