Is it time to review your wealth management, particularly your investment portfolio, to make sure it is on the right track to achieve your long-term goals? Whether you are taking a fresh look at your existing arrangements, or have capital to invest, there are five key elements that underpin successful investing.
These factors help ensure your savings are working as hard as possible, delivering real returns (after inflation and tax) and structured around your objectives, circumstances and attitude to risk. Importantly, following these principles can provide the peace of mind that comes with long‑term financial security.
- The right tax-efficient structure
- Your appetite for risk
- Matching your risk profile and objectives to a suitable investment portfolio
- Diversification
- Reviews
1) Tax and estate planning considerations – choosing the right tax-efficient structure for your investments
A tax-efficient structure, such as an ISA or pension plan in the UK, can keep most of your investments in one place and provide protection to help you legitimately avoid paying too much tax. You want to ensure that as much of your hard-earned wealth as possible is placed in the most suitable structure to limit your tax liabilities. At the same time, consider your estate planning wishes, so that your investment capital can be passed to your chosen heirs as easily and tax efficiently as possible.
You may be familiar with UK tax advantaged structures, but if you move abroad you have to navigate a foreign tax and succession regime – one which may have very different rules, opportunities and pitfalls than the UK. It is crucial to take advice from someone who is well-versed in the nuances of the local regime and how it can impact your wealth.
Otherwise, you may happen upon an investment portfolio that produces excellent medium to long-term returns, only to see them slashed by local taxes– levies that you may have been able to significantly reduce or avoid in some cases.
2) Your appetite for investment risk
Of course, no risk often means no returns. And arguably even bank accounts carry some risk, notably institutional risk. We also have inflation risk, where the rising cost of living erodes the spending power of bank deposits over time.
Most of us recognise that for some of our assets, exposure to market movements gives us a better chance of outperforming inflation and producing real returns over the medium to long term. However, the starting point has to be to obtain a clear and objective assessment of your appetite for risk. Otherwise, the result will be an investment portfolio that is not suitable for you.
These days there are some very sophisticated ways of evaluating your risk appetite, involving a combination of psychometric assessments and consideration of your other assets and investment objectives.
3) Matching your risk profile and objectives to the optimum investment portfolio
Every set of investments can be forecast to display a given amplitude of risk. Low amplitude, less investment risk but also lower likely returns. A higher amplitude of risk brings greater potential returns but also higher investment risk. The key is ensuring your investment portfolio matches your attitude to risk.
It is extremely difficult to effectively assess your own risk profile; you will benefit from third party professional objective guidance. Without such a sound assessment being then matched to the optimum blend of investments, you are likely to find yourself with a portfolio that is too risky or too cautious for you.
Another key initial step in ensuring your portfolio is suitable for you is to establish your objectives. Are you looking for income, growth or a combination? Or is your prime concern to preserve your wealth for children and grandchildren? What is your investment time horizon? Your adviser should then help you build a portfolio based both on your risk profile and objectives.
4) Diversification
The next critical component is to ensure your investments are suitably diversified and you are not over-exposed to any given asset type, country, sector or stock.
By spreading across different asset types (such as equities, government bonds, corporate bonds, property, cash) and markets such as (US, UK, Europe, emerging markets etc), you give your portfolio the chance to produce positive returns over time without being vulnerable to any single area or stock under-performing.
This sound investment approach can be extended by utilising a ‘multi-manager’ approach where several different fund managers are blended together. This reduces your reliance on any one investment manager making the right decisions in all market conditions.
5) Reviews
Finally, it is essential to review your portfolio around once a year to re-balance it, which your adviser should do as part of their continuing service. As asset values rise and fall, your portfolio can shift away from the one designed to match your risk profile and objectives, and you may need to make adjustments to re-establish your original weighting. Consider also if any of your personal circumstances have changed and the implications for your portfolio.
Regular re-balancing helps control risk and can have a positive effect on portfolio performance.
Successful investing
In summary, at Blevins Franks we ensure your assets are put in the right structure to limit potential taxation and meet your estate planning wishes; objectively assess your appetite for risk and match it to the optimum investment portfolio to suit that risk appetite and investment objectives; diversify across asset types, markets and investment approaches, and finally, review your portfolio as needed.
Five key principles which provide long-term peace of mind, while your investments and investment managers work to your requirements.
Contact Blevins Franks for personalised advice on successful investing.
All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.
