Ask Colin

I have 6 stocks in my portfolio, but it is quite unbalanced. Should I rebalance it?

I am a great believer that your portfolio should have some focus on good stocks, otherwise it is difficult to beat the index, yet also have at least a minimum level of diversification. 16 sounds like a good number. However, it needs to be reasonably balanced. If you have 16 stocks, you are close to my plan which is to have 6% of your portfolio in each stock as a maximum.

However, a portfolio is a dynamic thing and it changes in its composition with time - some positions get larger and some smaller. My policy is to bring it back into balance if it gets too far out of whack. I sell half of my position if the price doubles. This has the effect of reducing what has become about 12% of the portfolio back to about 6%, all other things being equal. However, there is no urgency to rebalance the portfolio unless it is very badly unbalanced and while the constituent stocks are in a clear

uptrend. So, take every opportunity to rebalance it when decisions to sell or lighten the exposure are taken.

Keyword: