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What do I do to balance my investments?

Published on:

15/10/2019

Within a varied portfolio, the performance of each fund may vary. Each fund is of course growing at its own rate. Some funds perform above average, others perform below average. If you look at the long term, the variations in yield can rapidly build up. This means that, after a while, the ratios in your portfolio will no longer be the same as they were at the start. A simulation:

In line with your investor profile, you opted in 2014 for the following spread in your portfolio: 70% shares, 15% bonds and 15% commodities. Because your equity funds performed on average much more strongly than your bonds and commodities, they now make up 85% of your portfolio. Looking at your risk appetite and loss aversion, you now have a (too) high exposure to equities. In this case, you can decide to rebalance your portfolio or KEYPLAN, or to opt for arbitrage.


What is rebalancing?

When you rebalance, you are kind of pressing the reset button. In this case, you are choosing to reset the ratios back to where they were at the start. In practice, you sell a part of the funds that have performed above average, and you buy more of the funds that performed below average. In our example, that would look like the following:

 

Why rebalance?

Those funds that rose strongly are, in theory, also those which could fall the furthest if there were a correction. You probably want to cash in the profits. This is the most important reason for rebalancing your fund portfolio or KEYPLAN when markets have risen strongly: reducing your risk. The disadvantage is that your portfolio will not perform quite so well if the equity funds do continue to rise steadily.

How can I rebalance my KEYPLAN?

  • Log in to our transaction site as client
  • Select your KEYPLAN
  • In the Manage tab, click on the "Rebalance your KEYPLAN" button

What is arbitrage?

With arbitrage, you adjust the distribution of the weightings, but without "resetting". This may be by assigning a new weighting to the different funds yourself. In our example, that might look like the following:
 


In the above simulation, you chose to invest more in bonds and commodities, and to reduce and redistribute your exposure to shares.

If you have a KEYPLAN, you also have a second way to apply arbitrage. For example, do you currently have a KEYPLAN with a cautious investment strategy? Then, for example, you can shift to a KEYPLAN with a balanced investment strategy (as long as your decision is in line with your risk appetite). If you choose this approach, you then have another 2 options:

  • either you can choose to place only your future investments in the new KEYPLAN. So your current KEYPLAN just carries on as it is, without any further money being deposited.
  • or you can choose to move all of your present KEYPLAN over to the new KEYPLAN. All your previous and future payments are made into your new KEYPLAN.

Why arbitrage?

You invest, in principle, for the long term and based on your risk appetite. But there are a number of exceptional cases where it can be useful to adjust your investment strategy. Once you reach a certain age, it may be a good idea to invest more defensively.

How can I apply arbitrage to my KEYPLAN?

  • Log in to our transaction site as client
  • Select your KEYPLAN
  • In the Manage tab, click on the "Change your KEYPLAN" button
  • Under "Your investment style" click on the name of the KEYPLAN to which you want to apply arbitrage
  • Finally click on "Confirm" above this

What about my investments in KEYPRIVATE?

Did you opt for wealth management via KEYPRIVATE? Then the manager will be continually monitoring to ensure that the composition of your portfolio remains in line with your investor profile. Unlike when you have a KEYPLAN, you don't need to do anything yourself. The manager makes the necessary adjustments to maintain the balance between your funds.



This article does not contain any investment advice or recommendation, nor a financial analysis. Nothing in this article may be construed as information with a contractual value of any sort whatsoever. This article is intended for information only and does not constitute in any way a commercialization of financial products. Keytrade Bank cannot be held liable for any decision made based on the information contained in this article, nor for its use by third parties. Every investment entails risks such as a possible loss of capital. Before investing in financial instruments, please inform yourself properly and read carefully the document "Overview of the principal characteristics and risks of financial instruments" that you can find in the Document centre.

 

 

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