On Trading 212 allocation options: Self-Balancing, By Targets, and Custom, and which one you should choose depending on your goals and portfolio size.
You have set up your Trading 212 pie, it’s going well, and you decide to put some more money into it.
Then the platform asks how you want your new deposit to be allocated.
Worried about getting it wrong?
Well, no need to worry. In this article, we’ll explore each of the three Trading 212 allocation options and which one you should go for depending on your situation.
The 3 options are:
- Self-balancing
- By Targets
- Custom
Let’s explain each of them one by one.
Option 1: Self-Balancing
The Self-Balancing option ensures your money is allocated in a way that corrects any imbalances in your portfolio.
Over time, certain investments in your portfolio may grow faster than others. This leaves some underrepresented and others overrepresented compared to your original plan.
Selecting Self-Balancing steps to attempt to fix this.
It allocates more money to underweight investments (those below their target percentage) and less to overweight investments (those above their target percentage), gradually restoring balance.
Over time, some slices may grow larger because they performed well, while others shrink due to weaker performance.
Self-Balancing takes new deposits and adds more to the smaller slices to bring them closer to their intended size.
This ensures your portfolio remains aligned with your goals.
This option is an automatic way to maintain your portfolio without the need for constant monitoring.
For example, let’s say your target allocation is 50% Apple and 50% Coca-Cola. (This is an example, not a financial recommendation for a pie allocation.)
After a report on iPhone sales, your portfolio shifts to almost 60% Apple and 40% Coca-Cola.
Using Self-Balancing, your next deposit would go primarily into Coca-Cola to restore balance.
Does Self-balancing always work?
This is a good option for your deposits; however, there is an issue that needs to be addressed here.
If I were copying a pie, I would start with self-balancing.
Early on, while your portfolio is still being built up, the deposits you add will have a big impact on the overall allocation.
However, once your portfolio gets to a certain size, the additional deposits don’t make a big enough difference to balance out the portfolio.
For example, if you start with £400 and add £100 a month, that first deposit you are adding is a 25% increase in your overall portfolio size just in the first month.
But after a few years, and your portfolio has grown to £4000, those £100 monthly deposits only account for 2.5% of your overall portfolio now and are less likely to be able to balance anything.
At that point, it’s better to switch to targets and manually rebalance sporadically.
Option 2: By Targets
The By Targets option allows you to distribute your funds strictly according to the percentages you’ve set for your portfolio.
Unlike Self-Balancing, it doesn’t adjust for any changes caused by market fluctuations.
Instead, it ensures every deposit adheres to your original target allocation.
For instance, if we go back to our Apple Cola portfolio of 50/50 Apple and Coca-Cola, every new deposit will follow these exact proportions.
This option doesn’t consider whether certain investments have grown or shrunk in size; it simply follows the plan you’ve established.
By Targets is ideal for investors who have a clear long-term strategy and want to stick to it with precision.
It provides discipline and consistency, making it a great choice for those who prefer full control over how their money is allocated.
By Targets may require manual rebalancing later on.
It is also worth noting that if you are auto-investing, then it will choose targets to make the deposits.
Now on Trading 212, it’s important to bear in mind that Pies & the Autoinvest feature is an execution-only service and not investment advice or portfolio management.
Automatic investing refers to executing scheduled deposits. You are responsible for all investment and rebalancing decisions.
Option 3: Custom
The Custom option gives you complete flexibility over how to allocate a specific deposit.
Unlike Self-Balancing or By Targets, this method allows you to decide how your money is distributed in that moment, without being tied to your portfolio’s general rules or targets.
This option is useful if you want to take advantage of unique opportunities or address specific investment goals.
For example, if you notice that stock prices have dropped significantly, you might choose to allocate 100% of your deposit to stocks to capitalise on the dip.
Since you can import stocks into the pie, I don’t see a reason to deposit custom funds inside the pie rather than just buying outside of it and then importing.
The pie allocations you set up were set up for a reason, right?
My view is that Trading 212 has only added this as an option to stop the whiners on the margin who would inevitably want the freedom to do it.
Which one should you choose?
As always, each of these Trading 212 allocation options serves a different purpose, and the right one for you depends on;
- Your investment goals
- Your preferences
- Your level of experience
Here’s how I would do it:
To begin with, self-balancing is a solid choice because it keeps things simple and requires little effort from you.
It’s great when you’re just getting started or don’t want to overthink every deposit.
In short, self-balancing does the job early on.
But if you go with the “by target” option, you’ll have to manually rebalance things yourself.
And as your portfolio grows bigger, self-balancing might not cut it anymore; you’ll probably need to get more hands-on at that stage.