Rebalancing Your Australian Portfolio: Staying on Target
Rebalancing is the process of realigning your investment portfolio back to its target allocation after market movements have shifted it — selling what has grown too large and buying what has fallen behind.
Suppose your target is 40% Australian shares (VAS) and 60% international shares (VGS). After a strong year on the ASX, your portfolio drifts to 50/50. You are now overweight in Australian equities relative to your plan. Rebalancing means selling some VAS and buying more VGS to return to 40/60.
Without rebalancing, your portfolio gradually takes on unintended risk. During ASX bull markets, your Australian allocation grows beyond target; after crashes, it shrinks below. Rebalancing enforces a disciplined buy-low-sell-high approach without requiring market predictions.
Tax implications matter significantly in Australia. Selling to rebalance in a taxable account may trigger a CGT event. If you have held the units for over 12 months, you receive the 50% CGT discount, but there is still a tax cost. Strategies to minimise this include rebalancing inside super (where CGT is only 10% for assets held over 12 months), or using new contributions to buy the underweight asset rather than selling the overweight one.
Super funds make rebalancing easy. If you hold a multi-asset option like a balanced or growth fund, the super fund rebalances internally at no tax cost to you. If you manage your own super allocation (within an SMSF or through investment choice), set a rebalancing schedule.
Most experts recommend rebalancing once or twice a year, or when any asset class drifts more than 5-10% from its target. More frequent adjustments rarely improve outcomes enough to justify the transaction and tax costs.
Richify Tip
Richify monitors your portfolio's drift across super and personal investments, flagging when rebalancing may be appropriate — with Australian CGT implications factored in.
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