Keep your balance as markets wobble

Rejig your investments now and you'll be first in line when shares pick up again, says Clare Francis
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The Independent Online

Stock market volatility looks set to continue, and it's not surprising many investors are reluctant to buy shares. But this doesn't mean you should sit back and do nothing. Now is the time to review your portfolio and, if necessary, tweak your investments so that you're in a better position to benefit from the recovery when it does happen.

Stock market volatility looks set to continue, and it's not surprising many investors are reluctant to buy shares. But this doesn't mean you should sit back and do nothing. Now is the time to review your portfolio and, if necessary, tweak your investments so that you're in a better position to benefit from the recovery when it does happen.

"Investors tend to have a whole rag-bag of different funds picked because they were flavour of the month at the time," says Patrick Connolly, associate director at Chartwell Investment Management, an independent financial adviser (IFA). "Now is an ideal time to take a step back, look at your overall portfolio and see if it meets your investment objectives and risk profile. A lot of clients hold funds that are doing the same thing, duplicating rather than complementing each other."

As an investor, you should aim to build a balanced and diversified portfolio. Anna Bowes, savings and investment manager at IFA Chase de Vere, says you should start by building up a good cash buffer, so that you don't have to sell your equities if you need money in an emergency.

Once you've got that right, you can start diversifying. "You have to consider all asset classes," says Kerry Nelson, senior investment adviser at IFA Bates Investment Services. If you own your home, you will already have property exposure, so the next things to look at are bonds and equities.

"It's not about market timing but about having a basic structure in place. If you get this right, it puts you in a good position to cope with market volatility," says Ms Nelson. With bonds and equities, investment decisions will depend on your attitude to risk. For a medium-risk investor, Ms Nelson recommends leaving 60 to 70 per cent of the money in the UK, with the rest fairly evenly split between continental Europe and the US. "Once you've got the basics right, you could perhaps add more spice by investing in a specialist fund such as healthcare or emerging markets," she adds.

Many investors bought high-risk funds such as technology stocks during the boom period at the end of the 1990s. A lot of people chose not to establish core holdings first because technology looked a sure-fire way of making money. Now they are nursing heavy losses and have become more risk averse. For anyone in this situation, Mr Connolly at Chartwell reckons that bonds are a good choice.

"In the longer term I think that equities will perform better than bonds, but it is still important to have some money invested in them," he says, adding that his own company has found many of its clients underexposed to bonds. When equities perform poorly, bonds do the opposite, so they tend to act as a good balancing tool.

But investors shouldn't just diversify; they must also make sure that their investments are working hard. Many unit trusts have fallen in value but some have done worse than others, and if you're in a really dud fund there's little point staying put.

One way to spot a hopeless fund, rather than one that's temporarily down on its luck, is to compare its performance with its peers. If the average in the sector is a 20 per cent fall in the past year, while your fund fell 30 per cent, it could be worth selling up and reinvesting in another fund.

But Ms Bowes adds some words of caution: "There's no point crystallising your losses and then keeping the money in cash, because you'll never recoup your losses. You want to invest in a product that will hopefully make gains quickly when the markets pick up."

'This is no time to go fund hopping'

Maggie Yeo, a 36-year-old housewife from Bath, is happy with her investments following a portfolio review by IFA Chase de Vere. She's on course to meet her long-term objectives, having invested her full individual savings account (ISA) allowance over the past three years in HSBC UK Growth & Income, New Star UK Growth and Credit Suisse Income.

"My gut feeling is that things will get better and I don't think now is the right time to move," she says. "If you're investing, you shouldn't go in and out of funds willy-nilly.

"However, I do think it's important to have your portfolio reviewed regularly as companies do change, and I'd expect Chase de Vere to tell me if the situation alters with any of my investments."

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