Knowing yourself, your needs and goals, and your appetite for risk is essential
A financial review is a great way to take a fresh look at your finances and plan for the journey ahead. More importantly, it enables you to talk through your long-term financial objectives and discuss with us a way forward to deliver your plan and achieve them.
You need to consider what you really want from your investments. A review will also ensure you are on top of your overall asset allocation and individual shares and funds. We’ll make sure they are consistent with how much risk you want to – and can afford to – take. Knowing yourself, your needs and goals, and your appetite for risk is essential.
1. Consider your reasons for investing
It’s important to know why you’re investing. The first step is to consider your financial situation and your reasons for investing.
For example, you might be:
Looking for a way to get higher returns than on your cash savings
Putting money aside to help pay for a specific goal such as your children’s or grandchildren’s education or their future wedding
Planning for your retirement
Determining your reasons for investing now will help you work out your investment goals and influence how you manage your investments in future.
2. Decide on how long you can invest
If you’re investing with a goal in mind, you’ve probably got a date in mind too. If you’ve got a few goals, some may be further away in time than others, so you’ll probably have different strategies for your different investments.
Investments rise and fall in value, so it’s sensible to use cash savings for your short-term goals and invest for your longer-term goals.
Most investments need at least a five-year commitment, but there are other options if you don’t want to invest for this long, such as cash savings.
If you can commit your money for at least five years, a selection of investments might suit you. Your investments make up your ‘portfolio’ and could contain a mix of funds investing in shares, bonds and other assets, or a mixture of these.
Let’s say you start investing for your retirement when you’re fairly young. You might have 20 or 30 years before you need to start drawing money from your investments. With time on your side, you might consider higher-risk fund exposure that can offer the chance of higher returns in exchange for an increased risk of losing your money.
As you get closer to retirement, you might sell off some of these riskier investments and move to safer options with the aim of protecting your investments and their returns.
How much time you’ve got to work with will have a big impact on the decisions you make. As a general rule, the longer you hold investments, the better the chance they’ll outperform cash – but there can never be a guarantee of this.
3. Make an investment plan
Once you’re clear on your needs and goals, and you’ve assessed how much risk you can take, we’ll help you identify the types of investment options that could be suitable for you.
4. Build a diversified portfolio
Holding a balanced, diversified portfolio with a mix of investments can help protect it from the ups and downs of the market. Different types of investments perform well under different economic conditions. By diversifying your portfolio, you can aim to make these differences in performance work for you.
You can diversify your portfolio in a few different ways through funds that invest across:
Different types of investments
Different countries and markets
Different types of industries and companies
A diversified portfolio is likely to include a wide mix of investment types, markets and industries. How much you invest in each is called your ‘asset allocation’.
5. Make the most of tax allowances
As well as deciding what to invest in, think about how you’ll hold your investments. Some types of tax-efficient account mean you can normally keep more of the returns you make. It’s always worth thinking about whether you’re making the most of your tax allowances too.
You need always to bear in mind that these tax rules can change at any time, and the value of any particular tax treatment to you will depend on your individual circumstances.
6. Review portfolios periodically
Periodically, a financial review will provide the opportunity to check and see if your portfolio’s wide mix of investment types and markets still aligns with your goals.
These are some aspects of your portfolio you may want to check up on annually:
Changes to your financial goals
Has something happened in your life that calls for a fundamental change to your financial plan? Maybe a change in circumstances has changed your time horizon or the amount of risk you’re willing to handle. If so, it’s important to take a hard look at your portfolio to determine whether it aligns with your revised financial goals.
An important part of investment planning is setting an asset allocation that you feel comfortable with. Although your portfolio may have been in line with your desired asset allocation at the beginning of the year, depending on the performance of your portfolio, your asset allocation may have changed over the period in question. If your actual allocations are outside of your targets, then perhaps it’s time to readjust your portfolio to get it back in line with your original targets.
Along with a portfolio with a proper asset class balance, you will want to ensure that you’re properly diversified inside each asset class. Diversification means owning a variety of assets that perform differently over time, but not too much of any one investment or type.
There are four main asset classes – cash, fixed-interest securities, property and equities – and having exposure to them all will help reduce the overall level of risk of your investment portfolio. If one part of your portfolio isn’t doing well, the other investments you’ve made elsewhere should compensate for any market corrections.
Consider if there are certain aspects of your portfolio that need rebalancing. You may also want to consider selling to help offset capital gains you might make throughout the year.
The primary goal of a rebalancing strategy is to minimise risk relative to a target asset allocation, rather than to maximise returns. Over time, asset classes produce different returns that can change the portfolio’s asset allocation. To recapture the portfolio’s original risk-and-return characteristics, the portfolio should therefore be rebalanced.