Stockspot automatically rebalances client's portfolios to ensure clients are consistently taking the right amount of risk for their investment strategy.
The frequency of rebalancing is unique to each client and optimised to be done at the right time.
Portfolio rebalancing occurs when your portfolio has drifted away from its target weightings by a set amount (a threshold) and needs to be bought back to the target weightings. It can also happen if you change your investment strategy or add Stockspot Themes to your portfolio.
What are the tax implications?
Portfolio rebalancing can trigger capital gains on the investments that have risen in value and are being sold as part of the rebalance.
Any time you sell an investment that's risen in value, you are liable to pay capital gains tax on the profit. It's considered 'investment income' by the ATO.
For example you buy an ETF at $80 per unit today and in 5 years it's worth $100 per unit - that's a $20 capital gain. As you have owned the investment for more than 12 months you will only have to pay tax on 50% of the capital gain. So just $10 of the $20 gain will be subject to being taxed at your marginal tax rate.
If its soled within 12 months it will 100% of the gain is assessable.
Stockspot keeps rebalancing to a minimum will only be done when needed for clients. In some years you may have a few rebalances (like in 2020), in other years perhaps just once or none at all.
If you regularly top-up your portfolio, that's a good way to keep it balanced with funds being allocated to the most underweight asset class each time.
The benefit of long term investing is that you are deferring most of the capital gains implications until future years when you sell down.
*We recommend speaking to a tax professional for any advice on your specific tax situation.
You can read more about rebalancing in these articles: