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What it is
A portfolio runoff happens when the value of a portfolio shrinks over time because investments aren’t replaced after they reach maturity or are terminated.
This usually involves fixed-income assets with set maturity dates like bonds. They stop contributing to a portfolio’s total earnings when they mature. The overall returns may drop if investors won’t reinvest the proceeds or add new assets.
What it means for you
The earnings you might get from your investment portfolio can decrease due to runoff. If you’ll let income-generating assets mature with no replacements, you may also end up with a portfolio that is no longer properly diversified.
Before you invest in an asset with a fixed term, it’s ideal to plan how you’ll reinvest, reallocate, or use the money once it matures. You should keep your goals in mind when choosing what to do with the principal and proceeds.
Remember to assess the health of your portfolio from time to time. This will tell you whether a runoff is affecting your money's potential to grow or your ability to manage risks.
