Is It Time To Review Your Investments?


Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

When was the last time your reviewed your investment portfolio? I mean, sat down and looked at all the assets you own, whether individual shares, funds, investment wrappers, property

When was the last time your reviewed your investment portfolio? I mean, sat down and looked at all the assets you own, whether individual shares, funds, investment wrappers, property, cash holdings etc, at the same time considering your current circumstances, objectives and time horizon, not to mention today?s investment climate? If your investments are not actively managed there is a good chance the risk exposure is wrong for you and the overall portfolio is not targeted to your specific needs.

How did you come to have your current portfolio?

Many people have ended up with their current portfolio almost accidentally. For example, they bought some shares in a promising company; then they obtained other shares from the company they worked for; then they bought a fund because they saw it advertised and it seemed a good opportunity; then they moved cash into a fixed term deposit account because the interest rate was competitive at the time, etc etc.

Does this sound familiar? Successful investment management is about managing risk versus return. Diversification and the right balance between assets are key. The problem with the above scenario is that your portfolio could easily have limited diversification and be unbalanced. It may be riskier than you realise ? and riskier than it need be to meet your objectives. Alternatively, if most of the savings you are relying on in retirement are held in bank accounts, your real returns may be insufficient to keep pace with inflation and you lose spending power each year.

Your portfolio may also not be targeted to your needs. For example, many retired people take income from their investments, but if your portfolio does not generate a natural income you could have to withdraw capital. This would leave you with less capital working to provide income and growth in future or to tap into when needed. You may have to sell at a loss if you need income when asset values have fallen.

When buying investments and building a portfolio, you should ideally establish the basics before you purchase anything or move capital around. These are your investment objectives, circumstances, investment time horizons, attitude to risk etc. Any assets you already own, such as property and pensions, need to be considered in terms of their place and risk impact on the overall portfolio.

Whether you have capital to invest, or already own various shares and funds without an overall plan, you should now meet with an experienced and regulated wealth manager, discuss the basics mentioned above so he has a clear picture of your situation and then, working together, begin to construct your portfolio. You may end up keeping some of your existing investments, but this should be a conscious decision as part of your overall portfolio.

If you already have a considered investment strategy, or once you set one up, it is important to have periodic reviews. If your strategy was established up with the help of a wealth manager he should do this for you, if not consider meeting with a new adviser who will. This should be done at least one a year, unless your circumstances significantly change in the meantime.

During the review consider the following: Have your circumstances changes? Are your objectives the same as they were? Has your time horizon shortened or increased? Has your attitude to risk changed? Have you got more capital you can now invest?

If anything has changed your portfolio may need to be amended to reflect your change in circumstances.

Your personal situation is not the only reason why you need to review your portfolio regularly. Just as important is the need to re-balance your assets.

Your asset allocation (x% in developed markets shares, x% in emerging markets, x% in fixed interest investments/bonds, x% in property, x% in cash, etc), should have been specifically targeted to your objectives, circumstances and risk tolerance). However, as some assets rise in value, in varying degrees, and others may have fallen, the asset allocation will no longer match what you started with. Your portfolio could now be much riskier than the one you started with, even though you have not actually changed anything. In this case it will be time to sell some assets and buy others to re-establish your original weightings, and your wealth manager should advise you on this.

Regular re-balancing helps to control risk and tends to have a positive effect on portfolio performance.

Last but certainly not least, if you have bought investments here and there and without a strategy in place, they probably are not tax efficient. With today?s high taxes you will not want to lose any more of your income or gains to tax than you absolutely have to. When planning your portfolio with your wealth manager, confirm that he is setting it up to be as tax efficient as possible, to benefit both yourself and your heirs if you are planning to pass your investments onto them.

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 February 2012

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.