How to get your portfolio back in shape
Even a well-structured selection may need tidying up.
16th July 2026 13:44
by Kyle Caldwell from interactive investor
For investors, the halfway point of the year can be an opportune time to examine how each holding has performed year-to-date and over longer time periods.
Reviewing a portfolio a couple of times a year is, like other tidy-up jobs, not one that investors are likely to look forward to. But it is necessary.
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An important thing to do is to “rebalance”. Doing so gets your portfolio back into shape as it restores the level of investment risk the portfolio aimed for when it was first put together.
In a nutshell, rebalancing involves taking a look at your winners and converting some of those paper gains into real profits. Some of the proceeds could then be reinvested into areas of the portfolio that have been underperforming, but may soon recover their poise.
For example, you may have started your portfolio with a certain amount in shares, bonds, or regions, like the US or UK. But because each of these investments would have performed differently, your portfolio weightings may look very different to when you first invested.
Given the strong decade for US shares, you may find you have more invested there than you would like, so it may be necessary to trim that part of the portfolio and reinvest it in a part of the market that has performed less well.
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In addition, investors who bought a tech fund or investment trust five years or a decade ago may now have too high a proportion of their portfolio in tech shares than they are comfortable with.
While it sounds counterintuitive, reinvesting in an underperforming area that you still have conviction in and expect to recover in time, will position your portfolio to benefit from a recovery as the percentage weighting is increased back to its prior level.
For example, let’s say five years ago an investor put half of a £20,000 portfolio into Vanguard LifeStrategy 60% Equity A Acc (B3TYHH9), 25% into Polar Capital Technology Ord (LSE:PCT) and 25% into Aberforth Smaller Companies Ord (LSE:ASL).
Over this time period a buy and hold investor who hasn’t made any changes will have seen that £20,000 turn into £33,865, which represents a percentage gain of 169.4%.
However, Polar Capital Technology has done most of the heavy lifting, returning 175.7% versus 36.0% for Aberforth Smaller Companies and 32.8% for Vanguard LifeStrategy 60% Equity.
On that £20,000 investment, here’s how the percentage weightings of each fund has changed:
| Fund | Amount invested five years ago | Percentage weighting in portfolio five years ago | What the investment is worth five years later | Percentage weighting in portfolio five years later |
| Vanguard LifeStrategy 60% Equity | £10,000 | 50% | £13,280 | 39.2% |
| Aberforth Smaller Companies | £5,000 | 25% | £6,800 | 20.1% |
| Polar Capital Technology | £5,000 | 25% | £13,785 | 40.7% |
Past performance is not a guide to future performance.
The table above shows how a portfolio can become lopsided. Over the period, Polar Capital Technology became the biggest holding and is now a slightly higher weighting than Vanguard LifeStrategy 60% Equity, which is a balanced fund that holds 60% in shares and 40% in bonds. The LifeStrategy fund does its own rebalancing to ensure that it doesn’t stray from its asset allocation.
Aberforth Smaller Companies has seen its portfolio weighting fall. UK smaller companies underperformed UK large-caps over the past five years, with interest rate rises acting as a big headwind for more domestically focused stocks.
However, due to how cheap valuations have become, many commentators are expecting a recovery to play out. If this materialises and a portfolio hasn’t been rebalanced, investors will not enjoy as big a boost as they could have done.
Of course, there’s always a risk of taking profits from a star performer too soon, particularly when it is significantly outperforming everything else. But, as the percentage weighting of the holding increases, so too does the risk level of your portfolio.
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It’s also important to acknowledge that underperforming investments that have money put back into them may remain out of form – either temporarily or permanently.
As with any investment, it’s worth trying to put recent performance to the back of your mind and ask: would I invest in this today?
There are no guarantees that selling a winner and reinvesting in an underperformer will prove more profitable over the long run, but what rebalancing does do for you is keep a lid on risk and restore the original shape of the portfolio.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.