Give your portfolio a spring clean and tidy up your finances
You have chosen your fund and invested your cash, so now you can relax? Not a bit of it, says Emma Dunkley
Saturday 04 May 2013
It's that time of year when the phrase "spring clean" comes to mind, but this doesn't just apply to giving your house a thorough dusting. Your investment portfolio requires a regular tidy-up too.
You might think all the hard work has been done once you've made your initial investment decision and that you can sit back, relax and reap the returns. But leave your portfolio unchecked for too long and you could find yourself losing out in double-quick time.
"We're strong advocates of regularly reviewing your portfolio – at least annually," says Jason Hollands at Bestinvest. "Yet research we commissioned from YouGov last autumn indicates as many as one in five existing UK investors claims to have never had a portfolio review."
So why should you periodically do that? "Not only do individual funds often go off the boil, your asset allocation will drift over time as various funds and assets perform differently," says Mr Hollands. "This can mean a carefully planned allocation to a niche area grows into a much bigger part of the portfolio, potentially exposing you to too much risk."
One of the first things you should do is review your goals for investing and how much risk you're willing to take on, to see if anything has changed, especially if your time horizon has altered. "Once you've done this, look at your overall portfolio to see if it reflects your current goals and attitude to risk," says Darius McDermott, the managing director at Chelsea Financial Services.
And if it turns out you have to go searching to gather statements from a number of providers, it might be worth thinking about consolidating your investments in one place, so next time you review your portfolio it will be a lot quicker and easier, says Mr McDermott.
When it comes to looking at how your investments have fared, it could be the case that some have performed well and others pretty badly. To make sure your portfolio isn't left unbalanced, you might look to sell some of those top-performing investments that now represent a larger part of your holdings, says Patrick Connolly at AWD Chase de Vere. For example, if six months ago you had £10,000 invested in Japanese Smaller Companies, your holding will have already shot up to £13,590.
You can then reinvest money into the poor-performing areas that have proportionately shrunk in your portfolio, to get you back to your starting point. "Don't sell investments which have underperformed without first understanding why they haven't performed well and also whether that is likely to change in the future," says Mr Connolly.
"Not only does rebalancing ensure you don't take on too much risk, but by selling investments that have done well in favour of those that have done badly you are effectively selling at the top of the market and buying at the bottom," explains Mr Connolly. "By sticking to this you can avoid the emotional input that leads to many investors buying at the top and then selling at the bottom and having a thoroughly miserable experience along the way."
You might think the main decisions are based on which fund to choose or stocks to buy, but it's important you have a well-balanced approach in terms of "asset allocation" or where you put your money, be it UK stocks, gold or government bonds.
"Academic research has consistently shown that around 90 per cent of the differences in performance between portfolios can be attributed to asset allocation rather than stock or fund selection decisions," says Mr Hollands. "But many investors have little understanding of its importance and are too quick to skip to fund selection."
Having made the tough asset allocation and investment selection decisions, the last thing you want to do is see your money eaten away by high costs. Although the outcome of investing is never certain, no matter how much you plan it, one thing that can be measured with a level of accuracy is the impact of charges.
"Costs should not drive your strategy but it is important to be aware of whether they are justified by excess performance and there may be ways in which you can reduce charges," adds Mr Hollands.
It's also important to make the most of any tax breaks available, so that you're not needlessly giving away money to the taxman. "You don't get much from the Government so make sure you take advantage of whatever you can," says Ben Willis at Whitechurch Securities. "Use your ISA allowance, if suitable, and don't forget the tax reliefs attached to Enterprise Investment Schemes and Venture Capital Trust investments."
But, although you should make a point of spring-cleaning your portfolio, you don't want to be over-zealous and change your investments too frequently, as it could end up working against you. "Let's face it, you shouldn't set up investments on the basis that you will need to keep altering them," says Philippa Gee, who runs her own wealth management firm.
"Repeated buying and selling will get you nowhere, as you will end up with being out of the market at the wrong time and paying too much in charges," she adds. "Reviewing properly every six months seems a sensible approach."
In terms of when exactly you should review your investments, there can be unforeseen circumstances cropping up that make it worth checking your holdings. Although you should have an investment strategy you can broadly stick to, there could be extreme market changes that warrant a check-up, or a fund manager leaves the fund in which you are invested. "These are all times when it is worth reviewing your investments," says Ms Gee.
If all of this seems overwhelming and you're starved of time, you could always seek expert advice. It might be the best path to help you make the most of your money, rather than attempt to understand all the different rules and regulations surrounding tax planning or the nuances between the millions of investment vehicles.
And if you're keen to cut the cost of paying for advice, there are a number of stockbrokers and fund supermarkets that offer free services to help you self-assess your investments, including tools that can recommend funds most suited to your needs.
So don't leave your portfolio in the dark gathering dust, as not only could you miss out on maximising returns but you could be in for a nasty surprise a few years down the line. Get it out and give it a good spring clean. It won't take that long and it will save you work in the long term.
Emma Dunkley is a reporter at Citywire.co.uk
Money Insider: Borrowers can cry mortgage freedom
Buyers beware of new-build home headaches
Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help
Five Questions On: GB Energy's new tariff
Money roundup video: Warning for mortgage borrowers and Premium Bonds boost
- 1 Autistic adults could take pure MDMA to 'reduce social anxiety'
- 2 Natalie Portman tells Harvard graduates: 'Accept your lack of knowledge'
- 3 Before you complain about your GP, this is what you need to know about actually doing the job
- 4 Father of 12 accused of raping, beating, starving and abusing his own children in US 'cult'
- 5 Charlie Charlie Challenge explained: not a Mexican demon being summoned — it's gravity
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
Australian man punched in the face for defending Muslim women from abuse on train
A nation of inequality: How the UK is failing to feed its most vulnerable people
EU referendum: David Cameron to deny EU migrants and under-18s the chance to vote
iJobs Money & Business
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...
Day In a Page
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool