If it’s been a while since you looked at your investment portfolio, now could be a good time to stage a review. A regular assessment of your investments will help ensure that you know whether they are on track to meet your financial objectives. The New Year presents the perfect opportunity to take stock. It’s never a good idea to adopt a buy-and-forget approach to managing your wealth, as you could end up with a portfolio that no longer reflects your investment goals and risk tolerance.
Getting the balance right
It is likely that when your portfolio was set up, the holdings were aligned with your attitude to risk and capacity for loss. This can change over time; as you get older you may not have the same appetite for risk, and may prefer to adopt a more cautious approach to your investments.
The level of risk you’re prepared to accept will in turn affect your asset allocation – the way your money is split between different types of investments, such as equities, fixed-income securities, cash and property. From time to time, you’ll probably need to adjust your holdings, as the performance of the assets you’re invested in is likely to vary. This is referred to as ‘rebalancing’ and means finetuning your portfolio so that it’s better-placed to meet your objectives.
For example, if you are retiring and want to produce an income from your investments, then you may want to switch from growth oriented assets to those designed to produce income.
Asset allocation and share selection
Your asset allocation can change due to the performance of your investments. If one fund or shareholding has performed particularly well, they could account for a bigger percentage of your overall portfolio, and may no longer be a good match with your investment strategy. So, it may be time to add more diversity to your portfolio. Taking a profit from these holdings can free up cash that can be reinvested in stocks or markets that aren’t presently represented in your portfolio, but which are in line with your investment objectives.
A good time to review your portfolio is during the closing months of the tax year, as this can help you think about the cash you might want to put into tax-efficient investments like ISAs or pensions. Communication is key to achieving your investment goals.
The value of investments and income from them may go down. You may not get back the original amount invested.