As the name suggests a balanced portfolio offers a carefully weighted set of investments, which ensures the portfolio is not skewed to an investment style of a particular set of investments.

Most investors, no matter what their risk profile, will want to have some degree of balance in their portfolio. So, why do we need that balance? The primary reason is to give the portfolio the greatest chance of growing. It’s also to give it the best chance of protecting capital when markets shift.

When constructing an investment portfolio, it is important to ensure that it does not become overweight in one or more area(s), which can work against the portfolio when markets change dynamic.

It can be easy for investors to skew their portfolio over time, even when it starts off as balanced. Bias, sentiment, an over-optimistic viewpoint, fear and inertia can overload a portfolio with investments of the same or similar kind and that can lead to trouble further down the line.

This can be seen particularly when markets fluctuate; as they become volatile, many investors sell out of the markets, and when markets are at their high, they pile in. This is a short-term approach which can create an imbalance in a portfolio as investors try to time the market. This is a tactic even professional fund managers steer away from, and it probably leaves those investors with many sleepless nights.

Other not to be followed traits include overweighting current top performing areas, thinking their strong performance will continue (few if any do), and hanging on to previous winners long after they are past their best in the hope that the market will take a turn for the better.

This is where Independent Financial Advice can bring a discipline to help a portfolio achieve its intended results. We work from the viewpoint that investments should generally be made with a long-term horizon, and portfolios should be diversified, for example, with a mix of asset classes, sectors and geographic regions, depending on investment goals. This will provide balance and a better chance for long-term growth, with a smoother journey and hopefully, very few if any sleepless nights along the way.

Traditionally, portfolios were balanced by holding a mixture of funds, primarily invested in stocks and bonds. But sometimes this simple balancing doesn’t work. A good recent example is when central banks began winding down quantitative easing. This had supported both bonds and stock markets and when the banks changed direction, both bonds and stocks dropped. Normally these asset classes are uncorrelated in that when one moves down the other counterbalances it, to larger or lesser extent. The current correlation in performance between stocks and bonds is unusual.

As a result, investors with high exposure to previously top performing areas, such as the technology sector or government bonds, found their investments were hard hit.

Investors that maintain a diversified portfolio are likely to have fared better, and relatively speaking, are more likely to have had a better investment experience.

One of our key tasks as Independent Financial Advisers is to keep a balance within our clients’ portfolios in relation to their risk profile. A strategy of balance through choosing a range of investments and investment managers, and a long-term outlook means our clients should not have to worry about short-term volatility in the markets. Their eyes will be on the horizon.

If you’d like to discuss your investment options with one of our Financial Advisers, call us on 0191 281 8811 or fill in the form below and a member of the team will be in touch to arrange your free, no-obligation consultation.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.