With the stock markets experiencing some volatility recently you may be wondering what it means for your investment portfolio. Or perhaps you want to understand how your investments could provide you with an income when you retire. Whatever your investment goals, the reviewing process is an important step.
Ideally, you should review your investments on an annual basis at least. This helps to ensure you’re still on track to achieve your goals and gives you an opportunity to reflect any changes that may have occurred since your last review. If it’s time your portfolio was reviewed, there are many areas to consider, among them:
1. Your goals and aspirations
As with all financial planning processes, your objectives should be at the heart of your investment strategy. What you want to achieve from investing your money plays an important role in the decisions you make.
To get the most out of your money, you should be investing with a plan, from funding an early retirement to creating a nest egg to gift to children. The outcomes you want to achieve will influence many of the other areas we look at, such as timeframes and risk. As a result, it should be the starting point for any investment review.
The first area to consider is whether you’ll be investing for income or growth. The strategies for these two objectives can be very different.
2. Your wider financial situation
You shouldn’t see your investments as separate from your other financial planning steps. They should all be helping you towards your ultimate goals.
The state of your finances should, therefore, affect investment decisions. If your financial security has improved since your last review, you may be willing to take a greater level of risk. Or an inheritance may mean you want to substantially increase your investment portfolio. Alternatively, you may also decide you want to decrease the size of your portfolio or take a more cautious approach.
Looking at your investment decisions in the context of your finances can help assess how they’re helping you towards aspirations.
3. Reassess your investment timeframe
With your goals in mind, you should have invested your money with a defined timeframe. This will have influenced how much risk you could afford to take on. Generally, the longer you’ll be investing for, the more risk you’re able to take as the dips have a greater opportunity to smooth out over the long term.
Reviewing gives you a chance to assess whether the time passed since your last review means your approach should change. For example, if you began investing with the view of funding your retirement 20 years ago, you may have opted for a higher risk strategy. As you approach retirement you may, therefore, start to change investments to those that are exposed to less volatility. Conversely, changing aspirations may mean that your initial investment timeframe needs to be adapted to suit goals.
When you start investing, you should do so with a minimum timeframe of five years.
4. Your attitude to risk
Over time your attitude to risk can change substantially. It’s an area that will be influenced by others, such as your wider financial security and what your goals are. A portfolio review is an opportunity to reassess how much risk you’re taking with current investments and whether it’s still at a level you’re comfortable with.
Throughout your life, your views on risk are likely to change several times, reflecting your personal experiences and what’s happening in the wider market.
Typically, the more market volatility you’re exposed to, the bigger the potential returns. Of course, this comes with an increased risk that your investments will decrease in value. When you’re investing, you should ensure that you’re able to withstand potential losses.
5. Past performance and fees
Reviewing the performance of your investment is crucial. It can help you assess whether you could make better returns if you choose other investments. While past performance isn’t a reliable indicator when predicting future trends, it can give you an idea of how your investments may perform in the future compared to other options.
Different investment strategies can have very different fee models and levels too. So, looking at how much your fees are in relation to your returns is important for weighing up whether you could benefit from moving some of your investments.
6. Check tax efficiency
Legislation is constantly changing and that means strategies that were once tax efficient may no longer be the best option. Your review process gives you a chance to see whether you’re still taking advantage of appropriate incentives as much as possible. You may find that there are now options that will help you reduce your tax liability.
Taking advantage of tax efficiency opportunities could mean you pay significantly less on the returns you make. Capital growth may be subject to Income Tax and Capital Gains Tax.
If you have any questions about your investments, please contact us.
