New tax year, same old investment portfolio?
Now the new tax year has dawned, it seems a good time for some financial spring cleaning and reorganisation. With that in mind, we thought we would share the question one of our clients asked us recently: how can I be confident that I’ve got a suitable mix of funds in my investment portfolio?
The first step to feeling confident about your investment portfolio is to check with an independent financial adviser what you have in it. Over the years we’ve seen too many investment portfolios with proverbial moths flying out of them, having been left untouched and neglected by their owners. If your investment portfolio hasn’t been reviewed in a while, moths could be the least of your problems. Much more damaging is the potential for substantial financial loss.
Just as the seasons change, the suitability and performance of investments changes, too; sometimes for the better, but often for the worse. Many factors can dictate the suitability of an investment portfolio and its individual investments including market sentiment, economic conditions and of course the management team running the fund or company you’ve chosen to invest in.
However, when it comes to both poor performance and suitability, there is often a completely different factor to consider, and blame. This is where our friends in the banks step in for another 5 minutes of fame. A favourite trick of theirs in the past has been to ‘sell’ an investment bond with the choice of either a barrel of monkeys, or monkeys in a barrel. And all too often, your options to make changes to your investments when the monkeys go ape are limited at best and sometimes non-existent.
But we can’t entirely blame the banks. There is also the emotional factor of not wanting to admit defeat and cash in on a loss, which can restrict your ability to move forward. This is where a true independent financial review of your investment portfolio comes into its own. A good independent financial adviser will help you decide whether your chosen investments have the capacity to recover or if better alternatives exist.
So how can you and your adviser decide this? First to consider, are economic factors and inflation in particular. Index linked gilt funds, for example, have had a fantastic run of performance over the past 3 years, with some funds showing a 40% return over this period. (1) Inflation figures have been on the high side which has boosted the performance and popularity of these funds, driving returns forward. However, it’s no surprise that since the turn of the year when inflation figures have been reducing that these funds have seen performance start to tail off.
Secondly, sentiment, which is often the reason for people doing something simply because everyone else is doing it. Remember those commercial property funds that just kept becoming more and more expensive, because more and more people were investing in them, because more and more people thought that property would only ever increase in value? The value of the property funds increased and increased… until they decreased, sharply. A number of these funds, especially those sold through the banks, are still over 30% down on their value 5 years ago. (2)
One of the key drivers behind ever increasing property prices was the availability of finance. Sensible levels of borrowing seemed not to exist and your friendly bank was more than happy to lend you that little bit more to make sure you pipped any rival bidders and pushed the price up just that little bit further.
Now with those days of easy finance seemingly behind us, do the drivers exist to push property prices on towards the next bubble and return some of those losses that have racked up over the past few years? Quite possibly not. The time may very well be right for moving on and bidding a firm goodbye to unsuitable investments.
Things change over time. So should your investment portfolio.
For a free review of your investment portfolio call Chris Rowe on 0845 230 9876 or e-mail email@example.com.
1. Index linked gilts comparison
2. Property comparison
The value of shares and investments can go down as well as up.
Past performance is not a guide to future performance.