Has coronavirus unbalanced your investments?

Why regaining equilibrium in changing markets is key

One of the biggest dangers of being a DIY investor is having an unbalanced portfolio. The proportion of different assets in your pension, ISA or other investments is important, ensuring a measure of protection against market falls and allowing your money to grow.

Everyone’s idea of a perfect balance is different. It will depend on your risk appetite and when you plan to use the money. If your money is managed by a financial adviser, most will change the balance of your investments as you get older and your risk tolerance changes, but DIY investors often fail to do this alone.

Why is this important now? The coronavirus crisis has left many portfolios looking dangerously unbalanced. While most assets have fallen in value in recent weeks, they have fallen at different rates. Shares have fallen furthest and fastest, while other investments, such as bonds and precious metals, have taken less of a hit. 

The proportion of shares to bonds in your portfolio is likely to have fallen, and that could leave your pension and ISA poorly positioned for a future recovery. History shows that equities, or shares, tend to outperform other assets over most longer time periods, and if you do not consider rebalancing your portfolio, you are likely to miss the boat when the market recovers as your portfolio will be heavily weighted towards other assets.

Taking steps to redress the balance is tricky, so many people will want to find a financial adviser to help them build a portfolio that is ready for the coming recovery. Here are the steps that they will help you to take: 

  • Matching your asset allocations to your risk tolerance
    By working out how much risk you are willing to take, as well as the time period before you will need the assets, they will create a portfolio with the mix of assets that is right for you. Depending on your risk appetite, this is likely to include a larger or smaller proportion of shares and bonds, as well as property, commodities (such as gold or silver) and cash.
  • Rebalancing your investments to match your profile
    This may mean selling some assets and buying others, repositioning your investments for a recovery phase, or it may mean creating an altogether new diversified portfolio.
  • Regular reassessment and rebalancing
    Your assets will be regularly scrutinised to check that the portfolio still meets your needs and is aligned with your risk appetite, so that your investments keep progressing towards your goals.

A misaligned ratio of assets in your pension or ISA can lead to you taking on too much or too little risk, jeopardising your financial health. That’s particularly true when the market moves suddenly, as it has in the last few weeks.

Post-coronavirus, it is more important than ever to ensure you get expert help with your finances. Speaking to an expert independent financial adviser could be beneficial.