Timeline Portfolio Rebalancing

If you are invested in a Timeline portfolio within your Transact account, you may notice transactions taking place within your account over the coming months. These are a normal part of the ongoing management of your investments and are designed to help keep your portfolio aligned with your long-term financial plan.

When we recommend an investment solution (such as Timeline), we carefully select a level of investment risk that is appropriate for your circumstances. This takes into account your financial objectives, your attitude towards investment risk and your ability to withstand short-term fluctuations in the value of your investments.

Each Timeline portfolio has a target mix of investments. For example, a Timeline Classic 50 portfolio aims to hold approximately 50% in shares and 50% in bonds. Over time, however, different investments perform differently. If shares perform particularly well, they can gradually become a larger proportion of the portfolio, increasing the overall level of investment risk.

Rebalancing is the process of restoring the portfolio to its intended investment mix. This typically involves taking some profits from investments that have performed strongly and reinvesting the proceeds into areas that have grown more slowly. The aim is to ensure that your portfolio continues to reflect the level of investment risk originally agreed and remains aligned with your long-term financial objectives.

Unlike some investment managers who rebalance portfolios at fixed intervals, Timeline uses a 'drift' approach. Rather than making changes every quarter or every year, the portfolio is only rebalanced when market movements cause the investment mix to move significantly away from its target allocation.

Timeline uses a 10% drift threshold. For example, a Timeline Classic 50 portfolio aims to maintain a 50/50 split between shares and bonds. If strong market performance causes the allocation to drift by 10% from its target – for example, to 60% shares and 40% bonds – the portfolio will be rebalanced by selling some shares and reinvesting the proceeds into bonds, restoring the original 50/50 allocation.

Timeline's research found several benefits to this approach. By only rebalancing when a meaningful level of drift has occurred, it helps to:

- Maintain the agreed level of investment risk

- Avoid unnecessary trading and associated costs

- Reduce the temptation to react to short-term market movements

We have now been recommending Timeline portfolios for around three years and, following the strong performance of stock markets during this period, some portfolios are approaching the 10% drift threshold. As a result, for those of you invested in this way, you may notice transactions taking place within your investments over the coming months.

For ISA and pension investments, these changes can usually be made automatically, as there are no immediate tax consequences of doing so. However, where investments are held within a General Investment Account, selling assets could give rise to a Capital Gains Tax liability. In these cases, we will discuss the options with you before making any changes, ensuring that any tax implications are considered as part of your wider financial plan.

Whilst these transactions may appear unusual, they are an important part of managing your portfolio, helping to ensure that it remains appropriately diversified and continues to reflect your agreed investment strategy. They are a normal part of the ongoing management of your investments, and importantly, there is nothing you need to do.

Please note that the value of investments and shares can fall as well as rise, and that past performance is not an indicator of future returns.