OTTAWA — Seeing your investments rise is always exciting, but it could also mean it's time for a rebalancing of your asset mix to guard against taking on too much risk or having a portfolio that's too concentrated in one asset.
Kathryn Del Greco, a senior investment adviser at TD Wealth, says it's key to review your current allocations to make sure they are still in line with what the original intent was when you built the portfolio.
If your portfolio becomes riskier than you are comfortable with and the market falls, she says you could be in for a great deal more stress than you expected.
"And that may inspire you to do the wrong thing at the wrong time," she says.
The balance in an investment portfolio refers to the mix of investments it holds — generally the allocation between stocks and bonds, but it can also refer to allocations of specific sectors and geographies.
A typical portfolio might have a mix of 60 per cent in stocks and 40 per cent in bonds, but the starting combination will depend on your risk tolerance. However, those allocations will change over time as different investments grow at different rates.
For example, if you've been lucky enough to have invested a small amount in a risky but fast-growing tech stock like Nvidia, it might now account for too much of your overall portfolio, exposing you to more risk than you want.
Maintaining the right mix of investments can seem counter-intuitive as you sell assets with big gains and move money to those that have not done as well.
Dan Tersigni, director of digital advice at Wealthsimple, says his firm looks to automate the rebalancing to take the emotion out of investing.
"It's very hard for people to sell the thing that has recently done well and given them joy and buy the thing that, you know, maybe they view as underperforming or a dog," he said.
He said Wealthsimple uses a thresholds-based approach.
"We monitor the portfolios for our clients every day and if assets reach our thresholds that we've determined in advance, then that will trigger a rebalance event, you know, whenever that happens," he said.
"If you let your portfolio run too much and become too concentrated in a single asset, then you expose yourself more to those risks."
For taxable accounts, there are also tax implications that must be taken into consideration as selling investments that have increased in value will trigger capital gains that will be taxed.
"You just want to be mindful of everything you do will trigger a tax event. So, you don't want to be excessively selling and triggering gains for small percentages," Del Greco said.
She recommends adding a review of your investment mix to your annual to-do list, alongside with checking that you've made your RRSP, TFSA and RESP contributions for the year.
But she says you should also review it if something has changed in your life.
"If your investment objectives have changed and, for example, you found yourself out of work unexpectedly and you are now in a position where you need to start to draw an income from your portfolios, that is a significant change," she said.
This report by The Canadian Press was first published Feb. 20, 2025.
Craig Wong, The Canadian Press
