Tuesday, April 20, 2010

Re-Balancing of Portfolio

When you have decided on an investment strategy for your Pension or Investment Product, you will no doubt have given due consideration to as to what percentage of your money will be allocated to each asset class (Cash,Equities, Bonds and Property). This will probably be based on your attitude to risk and any existing assets that you may have.

At the end of a certain period you may decide to 're-balance' your portfolio so that you have the same percentage of your investment is each asset class, that your started out with. The changes in your investment occur because the values of the different assets will have performed/underperformed over a period of time. This is like a mini-audit of your portfolio so that you can reassess how much risk you are exposed to on a given day.

The following is provided as a practical example, using historical data, of how this works in practice and is not to be taken as advice. The assumptions used are that the Annual Management Charge is 1% and that 100% of your money was invested from day one.

€10,000 invested on 01/01/2001 into the Zurich Life's 5*5 Global, Balanced and Active Fixed Income Funds (1/3, 1/3, 1/3 respectively). The end values are calculated as at 31/12/2009.

With No Re-Balancing (no changes to initial allocation for 9 years): The value of the investment at the end of December 2009 would have been €13,291.37

If the client had re-balanced (making sure the 1/3 ratio in each Fund) on the 1st of January every year : The value of the investment at the end of December 2009 would have been €13,887.92

Again, this historical information is provided purely for illustrative purposes only and should not be construed as advice.

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