Sometimes it is best to know your enemy and when it comes to investing there are a lot of hurdles to traverse. Here we look at the 10 things you need to avoid if you want to create a portfolio of investments that really work for you.
Published on 13 Aug 20136 minute read
Written by Lee Dooley
Until you have properly set your goals, reaching them with a portfolio that works for you will be difficult. Are you looking for capital growth, do you rely on a sustainable income or are you somewhere in the middle? Our Free Investment Report will tell you what your current portfolio set-up is.
A principle of investing is that there is a relationship between risk and reward – we expect higher risk investments such as equities to return more than low risk investments such as cash. However, taking on a high level of risk does not guarantee greater returns or it wouldn’t be risky!
The government offers a number of tax shelters to encourage people to build up their savings. Two of the most popular options are ISAs and pensions, but within these well-known saving vehicles there are lots of additional perks such as using ‘carry forward’ for pension contributions, and determining which investments are most tax-efficient when held in an ISA, that are often missed.
If you hold investments outside of an ISA or pension, ‘locking in’ capital gains by rebalancing your portfolio on a regular basis means that when you do come to sell down your portfolio, your capital gains tax (CGT) liability will be greatly reduced. The individual CGT allowance currently stands at £10,900 per annum and re-basing your portfolio regularly could help you avoid 18-28% in CGT when you come to draw from your portfolio.
Asset allocation is the process of deciding how to spread your money across different types of investments such as bonds, equities, property, cash and targeted absolute return funds and then across different geographical regions and investment styles. As each type of investment will perform differently at various points in time, achieving a diversified asset allocation can help reduce overall volatility, as well as expose you to a wide range of opportunities.
Selecting high quality funds in each category of your portfolio is important. But what constitutes a quality fund?
At Bestinvest we look past the funds with the best historical performance or those that are heavily tipped. Fund managers change jobs. That’s why our fund analysts have more than 400 face to face meetings with fund managers each year. We examine their full record in their relevant sector and take a rigorous number of factors into account, including career history, relative performance and risk controls. We then carry out our own statistical analysis to make sure it is skill rather than chance that makes their funds successful.
Not only will it keep your postman busy, it is difficult to maintain an accurate overview of your investments if they are dotted around between providers. It is a scary statistic that according to recent research from charity Age UK, one in four people has actually lost track of a pension altogether.
Holding your investments in one place makes them easier and often cheaper to administer (and harder to lose track of assets). It also allows you to review and act on your investments with the bigger picture in mind, making sure you are keeping on track with your objectives. We are able to hold your ISA, pension, and general investment portfolios under one roof, allowing you to get an accurate overview of your finances. You can then make sure they are working in line with your objectives.
Putting the performance of funds to one side, the charges you pay to a company to hold and administer your investments can eat into the returns they will give you. That it is why it is crucial to find a company that offers the level of service you need at a competitive price.
Investing doesn’t finish at the point you buy your funds. It is vital to continue to monitor a portfolio once invested and to periodically reappraise it. This is because your asset allocation will drift over time and sometimes formerly strong funds can deteriorate or require reassessment, for example if a fund manager moves job.
As we have just explained, in order for your investments to be working to their optimum, they do require attention. Whether it is time, inclination or knowledge, not everybody is able to maintain the upkeep of their portfolio alone. That is why it is essential to pick a service level that suits your needs and a provider that is able to furnish you with the level of support that you require, whether it is self-directed investing with sufficient tools and guidance, receiving on-going and proactive support from a professional adviser of having your portfolios managed in line with your objectives over the long-term. We have a full range of services to suit your desired level of involvement and would be happy to discuss them with you.
At Bestinvest we have all the tools and information you need to plan your asset allocation, select highly rated funds and actively monitor your portfolios. If you are not currently a client, then why not try our Free Investment Report Service & Tool to analyse how your own investments measure up? If you would like to discuss your findings or discuss how we may be able to help do not hesitate to get in touch with one of our investment professionals on 020 7189 9999 or email us at firstname.lastname@example.org