At the same time, government bonds actually performed well. So when stocks fell heavily earlier this year, you could’ve lost more than you were comfortable with. When the pandemic struck you would’ve had far more invested in stocks than you had initially planned. Remember past performance is not a guide to the future. That means by 1 January 2020, stocks would’ve made up 64% of your portfolio – not 50%. In the decade leading up to 2020 Global stock markets returned 198%, while UK government bonds returned 69%. Suppose you decided in 2010 to make your portfolio 50% stocks and 50% government bonds – we’re not suggesting this is a good mix, it just keeps the maths easy. How to build an investment portfolio How rebalancing works By combining asset classes, investors can tailor the balance of risk and return in their portfolios to suit their preferences. Bonds have offered lower returns but are usually less volatile. Historically, stocks have delivered high returns but come with a significant degree of risk. Take a portfolio including a mixture of stocks and bonds for example. It’s a simple case of not putting all your eggs in one basket. Investors should hold a diversified portfolio made up of a range of investments from different asset classes, like stocks, bonds, property, commodities and cash. Of course, any changes you make should still be in line with your investing goals and with how much risk you’re happy taking. The idea is to keep the overall shape of your portfolio constant, even if the size changes. Rebalancing means selling your investments that have performed well to buy other investments that have performed poorly.
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