Is It Time To Review Your Investment Planning?


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It?s that time of the year where we tend to evaluate where we are and where we want to be with regards many aspects of our life, including our finances. While of course any time of the year is a

It?s that time of the year where we tend to evaluate where we are and where we want to be with regards many aspects of our life, including our finances. While of course any time of the year is a good time to evaluate your wealth management, if you haven?t done so for a while you could take this ?New Year? opportunity to review, plan ahead and implement any necessary changes.

Your approach to wealth management

Many people buy their investments in isolation. They buy some shares here and some shares there. They may buy a fund because they?ve seen it advertised and it looks attractive. They select savings accounts based on which one is offering the highest interest rate at the time.

The problem is that without a cohesive strategy you have probably increased your investment risk. You may be very overweight in one particular asset class or have even restricted your investment capital to just one asset, be it shares or cash. Relying on a single asset class is risky when you consider that no one consistently outperforms on a regular basis.

It is also quite possible that the overall portfolio you?ve ended up with is not targeted to meet your needs. It could, for example, be geared towards growth when one producing regular income would be more beneficial for you. Alternatively you may have all your savings in the bank even though you need capital growth to protect your spending power through retirement.

If your portfolio doesn?t have an overall strategy, there?s no time like the present to review it and establish a more effective, targeted wealth management plan.

The first step is to define your financial goals. Will you need to access the money in the short term or are you saving for the future? Do you need income or growth, or a mix of the two? Is your main concern to protect the value of your savings? Do you think you?ll need all your savings in retirement or are you planning to leave an inheritance to your children?

The next step is to work with a professional wealth manager to analyse your current financial situation and calculate what you may need in future, taking potential inflation over your time frame into account. Your adviser will then evaluate if your current portfolio will achieve your objectives or not, and recommend the best strategy for you going forward.

A good professional will start by gathering information about your current assets, resources and pension plans to get a full picture of your financial situation. His recommendations will take everything into account and be tailor made for your circumstances. A holistic approach to managing your money won?t only look at investment returns, but also tax mitigation, retirement planning, estate planning and improving your pension benefits.

A cohesive investment strategy makes it easier to lower your tax liabilities ? after all, what matters most is after tax returns – and to control risk. Many investors expose themselves to more risk than they need to, and more that can be justified by the return potential of their portfolio. Your portfolio should be designed to obtain the lowest risk exposure for the potential return you seek to achieve. It may be possible to achieve improved investment potential but with lower risk.

Why strategic asset allocation?

It?s important to have the right mix of assets for your age, objectives and expectations for return.

Asset allocation is the process of diversifying investments by spreading them among equities, bonds (fixed interest investments), property and cash, to optimise the risk/reward trade-off based on your specific situation and goals.

Equities, bonds and ideally also property should then be further diversified across sectors and countries. Some funds also offer the opportunity to diversify across managers so that you have top specialist money managers looking after your capital. You should also consider a mix of currencies.

When you buy funds, strategic asset allocation does not mean buy and hold and forget, because while your overall allocations may remain static at asset level, at the individual security level the active managers are continually moving in and out of positions and sectors.

The importance of rebalancing

Rebalancing is another critical element of your wealth management plan. It involves periodically buying and selling assets in a portfolio to maintain the original desired level of asset allocation.

As the values of assets shift with market changes, your initial investment policy mix can change. Your wealth manager should review your portfolio at least once a year to re-establish your original weighting according to your risk tolerance if necessary.

He may suggest selling a portion of a more expensive asset class in favour of a less expensive one. This may seem counter-intuitive ? you?re selling what has recently won and re-balancing into what has underperformed on a relative basis ? but it?s a good strategy to meet long-term investment goals because it keeps portfolios aligned with your risk tolerance and investment objectives.

You also need to re-evaluate goals over time and your asset allocation may need to change to reflect your different circumstances or objectives.

The current climate

Is your portfolio well positioned as we move through the recovery phase, and fortified as much as possible against future downturns? Despite the negative outcomes we all experienced last year, strategic asset allocation remains the foundation that helps lead to long-term success in reaching financial objectives.

While the turbulent period we?ve been through has made investing more daunting, bear in mind that it is usually something we have to do to increase our chances of outpacing inflation and enjoying the quality of life we want right through retirement. There are times in an economic cycle when it is more risky to be out of the markets.

Remember also that tax rises are inevitable over the next couple of years, so it?s important to ensure that your choice of investment structures are as tax efficient as possible for your country of residence.

A wealth manager like Blevins Franks will help you establish a plan to achieve your objectives and improve your financial security.

By Bill Blevins, Managing Director, Blevins Franks

2nd January 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.