Rebalancing your portfolio: is it worth it and how often should you do it?

The concept of diversification should be nothing new to experienced DIY investors. Diversification means not putting all your eggs in one basket. It is about spreading risk across a range of assets that are not correlated to each other (i.e. they don’t move in the same direction) meaning, if markets fall, you shouldn’t see all your investments losing value at the same time or to the same degree. Well, that's the theory although it doesn't always bear out in practice. You can also diversify within each asset class – for example, holding shares in both large and small companies, in companies operating in different sectors like technology or utilities, and in both international and domestic companies.

Diversification is an important part of risk management but, from a return perspective, you are also trying to maximise your chances of positive returns over the long term because every asset class will eventually have its day in the sun.