Year-end portfolio rebalancing: Are you on track?

With the year ending, it is time for all the generic investors to adjust their focus on their portfolios owing to the shift in the market dynamics. Many portfolios have become excessively tilted towards equities as the Nifty50 has noted new highs and mid-cap stocks have performed exceptionally.

“It is suggested that further investments be pulled out of the over-stretched sectors and into defensive sectors and debt instruments to remain within one’s preferred asset allocation. In particular, investors need to check their allocation to small-cap stocks, which are up sharply this year,” said Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited

Maurya added that such investors should construct a portfolio with a recommended equity-to-debt ratio of 60:40, which should be modified to suit the investor's risk profile and the market scenario.

The historical strategy of investing in indices, which has worked intermittently, needs to be abandoned in the current environment of changing geopolitics and the local economy. Since many retail investors are now putting money in direct equities, rebalancing portfolios becomes even more essential.

“I recommend looking into the sector weights, such as banking and IT, which have been extremely volatile on the stock level. It would be reasonable to allocate between 15% and 20% to global funds to invest in assets in other countries. Considering how well gold has performed over time, I recommend an investment of 5-10% of the allocated amount in it, for it is a very safe asset during times of very high inflation and uncertainty in markets,” said Aman Gupta, Director of RPS Group

“In the year 2024, the prices rose in the Indian real estate market, and especially in the tier II cities, an upswing of 15 to 20 percent was recorded. Such investors with exposure to enough real estate must start investing in REITs, such as properties that offer increased agility for the clients and lower investment costs. The commercial real estate sector, especially towards IT hubs like Bangalore and Pune, still looks good even with the hybrid model. I would suggest the amount exposing one's investment portfolio to real amounts should not exceed 25 -30 % with a good mix of residential developments in growth corridors and commercial REITS for steady income,” said LC Mittal, Director, Motia Group.

Portfolio rebalancing

Changing the weights of the various assets in your investment portfolio to preserve the risk and return you want is known as portfolio rebalancing. Your portfolio may deviate from its intended allocation over time if certain investments perform better than others. For instance, stocks may account for a higher percentage of your portfolio than you had initially intended if they have done well, raising the overall risks.

Read all our personal finance stories here

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.