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When Should Senior Citizens Rebalance Their Investment Portfolios?

Portfolio rebalancing protects you from the underlying risks of over-exposure to a particular asset class.

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Outlook Money
December 28, 2023
Seniors Rebalance Their Investment

Seniors Rebalance Their Investment

As 2023 draws to an end, you may ponder whether you should rebalance your investment portfolio and start with a new allocation strategy in the New Year. There is no straight answer, as it depends on the performance of your investments, the time required to reach your financial goals, your age, and a change in risk profile, all of which may contribute to your decision. However, as the year ends it is a must that Seniors Rebalance Their Investment Portfolios or even give it a thought while entering a new year.

While fixed-income instruments form a significant part of senior citizens’ portfolios, they may also invest in short- to medium-term mutual funds, corporate bonds, etc., for growth, so they must assess whether to continue or discontinue a particular asset class depending on their performance. People typically wait a year to evaluate the performance of their holdings before changing the allocation ratio to avoid excessive tilt towards a particular asset to minimize risks.

Also Read: 5 Alternative Investment Avenues Suitable For Retirees

Why should you rebalance the portfolio?

You may have mutual funds, equities, debt instruments, gold holdings, etc. in the portfolio. The ratio of these assets will depend on your risk profile and financial targets. Suppose you have invested heavily in mutual funds in a particular year and may want to pause or reduce your investments in the next year. In that case, you may opt for portfolio rebalancing, essentially changing the asset allocation ratio by increasing or decreasing the investments in a particular asset to ensure capital preservation and stable returns. Thus, portfolio rebalancing is critical.

This may mean selling a portion of your assets and reinvesting the proceeds in assets that you want to increase, allowing you to rebalance the portfolio as per your financial requirement and risk-taking ability. For instance, it could be in the ratio of 60 percent in debt and the rest in equity mutual funds or a mix of other growth assets and vice-versa. The allocation ratio will depend on your risk profile, financial needs, and the performance of the existing holdings. If you are in doubt, consider consulting a professional financial planner to guide you.

“In general, an investment portfolio should be considered for rebalancing when it is underperforming its benchmark over a significant period of time,” says Abhijit Talukdar, Sebi-registered investment adviser and founder of Attainix Consulting, a financial advisory firm.

If seniors rebalance their investment portfolios it will protect them from the underlying risks of over-exposure to a particular asset class. You should also consider the tax implications while initiating the process. You may be required to pay short- or long-term capital gains tax depending on your holding period.

Therefore, selecting the right investing tools to balance taxation, growth, and stability is critical. For instance, you could opt for an Equity Linked Savings Scheme (ELSS) with a 3-year lock-in period or debt instruments like government securities, treasury bills, and bonds.

Also, hybrid funds, dynamic asset allocation funds, multi-asset allocation funds, etc., can significantly help reduce the risks to the portfolio while ensuring considerable growth.

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