What is Portfolio Balancing?

📌 Definition:

Portfolio balancing is the process of spreading your investments across different assets to manage risk and increase long-term returns.

📊 Think: Not putting all your eggs in one basket.

If one investment fails, others can keep you afloat.

🤔 Why Balance Your Portfolio?

Many new investors make the mistake of putting all their money into one stock or one sector because it looks promising at the moment. But the truth is that no company, industry, or even country’s market is 100% safe forever. Changes in the economy, politics, or even global events can shake specific investments. That’s why balancing your portfolio is important — it spreads your risk and protects you in the long run.

✅ Reduce risk of major loss – Imagine if you only invested in bank shares and suddenly regulations or loan defaults hit the banking sector. Your portfolio would drop heavily. But if you also had shares in telcos, manufacturing, or a treasury bond, those other investments could cushion the fall.
✅ Smooth out ups and downs – Markets don’t move in the same direction at the same time. For example, during COVID-19 lockdowns, hospitality stocks fell, but tech and telecoms grew strongly. A balanced portfolio spreads the risk, so the gains in one area can offset losses in another.
✅ Prepare for different market conditions – Some assets perform better in inflationary times (like gold and real estate), while others do well when the economy is booming (like growth stocks). By holding a mix, you are better positioned no matter the economic cycle.
✅ Stay aligned with your goals – Every investor has different goals. If your goal is growth, you may hold more stocks. If you want income, you may include dividend-paying companies or bonds. A balanced portfolio makes sure your investments match your personal financial objectives, whether it’s saving for retirement, building passive income, or just protecting your capital.

🔑 Key Diversification Options

1. 🏦 By Sector

Banking – e.g., KCB, Equity
Telco – Safaricom
Manufacturing – BAT Kenya, EABL
Energy – KenGen, KPLC

2. 🌍 By Geography

Local (NSE): Familiar companies like Co-op Bank, Safaricom.
Global: US tech giants (Apple, Microsoft), EU firms, Emerging Markets like India or Nigeria.

3. 💹 By Asset Class

Another important way to balance your portfolio is by spreading investments across different asset classes. Each asset behaves differently depending on market conditions. By mixing them, you protect yourself from relying too heavily on just one type of investment.

Shares (Stocks): These are ownership stakes in companies. They offer the potential for growth (when share prices rise) and dividends (regular cash payouts). For example, Safaricom shares can grow in value as the company expands, while BAT Kenya regularly rewards investors with dividends. Stocks are great for long-term wealth building, but they can also be volatile in the short term.
Bonds/Treasury Bills: These are considered safer investments compared to shares. When you buy a government bond or T-Bill, you are basically lending money to the government, and they pay you interest. For instance, a 1-year Treasury Bill will give you fixed interest regardless of whether the stock market goes up or down. They provide stable and predictable income and are useful for balancing risky stock investments.
ETFs (Exchange Traded Funds): These allow you to invest in a “basket” of assets at once, often with very low costs. For example, the ABSA NewGold ETF listed on the NSE tracks the price of gold, giving you protection against inflation. Internationally, ETFs like the S&P 500 ETF give you exposure to hundreds of US companies at once. They are perfect for diversification without needing to buy each stock individually.
REITs (Real Estate Investment Trusts): These let you invest in property indirectly through the stock market. Instead of buying an apartment or office building yourself, you can buy REIT units and earn a share of rental income. For example, Fahari I-REIT on the NSE invests in malls and commercial property, giving investors property-backed income and diversification.
Cash: While cash itself doesn’t grow much, having some money in savings or a money market fund gives you flexibility. It acts as an emergency buffer so you don’t need to sell your investments quickly when you need money. In Kenya, popular money market funds like CIC or Sanlam offer steady returns while keeping your money liquid.

👉 By mixing these asset classes, you create a strong foundation for your portfolio. Stocks give you growth, bonds give you stability, ETFs and REITs spread your risk, and cash ensures you have liquidity for unexpected needs.

4. 🧭 By Risk Profile

High-risk: Growth stocks, forex, crypto
Low-risk: Dividend stocks, treasury bonds

🌍 Local + International Mix

A balanced portfolio usually has both local & international assets:

✅ NSE Stocks – Local exposure you understand
✅ ETFs / Global Shares – Spread risk beyond Kenya
✅ Bonds / Treasury Bills – Reliable returns, stability
✅ Forex / CFDs (optional) – Higher risk, but liquid

🔁 Adjusting Your Portfolio Over Time

Portfolio balancing is not something you do once and forget about. Markets change, companies grow or decline, and your personal goals also shift with time. That’s why you need to rebalance your portfolio regularly to keep it aligned with your strategy.

Think of it like a car service – even if the car is running, you still need to check the oil, tyres, and brakes from time to time. Similarly, rebalancing ensures your investments stay in good shape.

📆 Do it quarterly or yearly – Most investors review their portfolio every 3 months or at least once a year. This gives you time to assess which assets have grown too much and which ones need topping up.
📉 Sell stocks/sectors that have become too big (overweight) – Example: You planned to keep Safaricom at 30% of your portfolio, but because the share price went up, it is now 45%. That means your portfolio is now too dependent on one stock. Selling a small portion brings the balance back to your target.
📈 Add undervalued or underweight assets – If one sector or asset has dropped in price but still has strong fundamentals, it might be a good time to buy more. For instance, if banking stocks are temporarily down but you believe in their long-term growth, you can increase your allocation there.
🧓 Younger investors = More risk – If you’re in your 20s or 30s, you have more time to recover from market downturns. This means you can hold more growth stocks, tech companies, or global ETFs that may be volatile but offer higher long-term returns.
👴 Older investors = More safety & income – If you’re closer to retirement, capital preservation becomes more important than chasing high returns. Here you would shift more into bonds, treasury bills, dividend-paying stocks, and REITs to ensure steady income and lower risk.

👉 The key is to remember that your portfolio should evolve as you do. Your needs at 25 are not the same as at 55. Rebalancing keeps you on track with your goals while protecting you from unnecessary risks.

🧾 Real-Life Balancing Strategy Example

Imagine an investor with KES 100,000:

30% Safaricom (growth & market leader)
25% KCB (banking sector exposure)
20% BAT Kenya (dividends & defensive stock)
15% NSE ETFs (gold hedge against inflation)
10% Treasury Bond (stable fixed income)

🎯 Outcome:

✔ Regular dividend income
✔ Growth from leading companies
✔ Sector & asset diversification
✔ Inflation protection via gold & bonds

🛠️ Tools to Help You Balance

NSE Website – Sector & company data
Trading Apps (AIB Digitrader and portal) – Monitor performance
Broker Research Reports – Market updates & guidance
ETF & Index Charts – Track global exposure
Broker/Advisor – Get tailored recommendations

📘 Final Thoughts

Portfolio balancing is about protecting your wealth while growing it steadily.

Don’t chase only the hottest stock. Instead:

👉 Spread across sectors, countries, and asset types.
👉 Adjust regularly based on your age and risk appetite.
👉 Think long-term.

Just like a football team needs defenders, midfielders, and strikers, your portfolio needs a mix of safe, moderate, and risky assets to win in the long run. ⚽💼