What are the three Ps? They are Portfolio, Protection and Priorities. Let's look at each one in turn.
Review Your Portfolio
Once you’ve reviewed to look at how your invested money in pensions, ISAs and so on have performed over the last year. Chances are you’ll have been keeping half an eye at least on how things have gone throughout the year, but take the time now to dig a bit deeper.
You want to look at the funds you’re in, the split between them and also the platform providers you’re using. With the funds, check back over the performance for the year. Pull up a graph on your platform or on Morningstar.
Usually, you can overlay your funds to see how they have done compared with each other, and also with other measures like various indices. Don’t worry too much about stuff which doesn’t actually relate to your plans. The performance of the FTSE100 is irrelevant; of far more importance is how your portfolio has performed relative to your plan.
When reviewing performance, always ask why. Why did the funds perform as they did? If you’re using tracker funds, what you’re really asking is why did the markets that you’re tracking behave as they did. If you’re using active funds, you’ll want to compare with the relevant sector average – did your chosen funds under- or outperform? Why?
Overlay what happened in the world throughout the year on to the performance of your portfolio. In 2020 we had the coronavirus pandemic – the first pandemic for a century. No wonder the markets acted weird.
If by some bizarre set of circumstances, you weren’t aware that the world economy basically stopped for a few months, you might wonder why your fund value plummeted in March 2020. Apply context to your portfolio performance, but don’t obsess.
Rebalance if needs be. If the weightings of the constituent parts of your portfolio have moved significantly since you set them up, bring them back into line. It seems counterintuitive, and it is – selling stuff which has done better to buy the lower performing stuff.
But if you believe in asset allocation as the primary driver of returns, then you’ll make the switch. Just watch out for capital gains tax for money not in a pension or ISA. If nothing is wildly out of whack, you can move on. I have done other episodes on conducting investment reviews – try this one and this one for starters.
For your platforms, are they behaving as they should? Are there any frustrations when using a system that you’ve had enough of? Might you get better service elsewhere? What about costs? Has the balance of your accounts got to the point where you may fall into a lower tier of charges on a different platform, maybe? Don’t drift – check that your finances are optimised.
Review Your Protection
Next, take a look at your current protection programme. I did a session on this back in Season 14 that you can find here. Your insurance programme is the foundation on which everything else is built – it’s THAT important.
Take the time firstly to remind yourself of your current provision. Remember the three risks we’re covering: Dying early, contracting a serious illness but surviving, and being unable to work long term. Each of those three ultimately ends in the loss of your income, either temporarily or permanently, and whether your here to realise it or not.
If you’ve followed my previous advice, you might have a one-page summary of your insurance programme written out, but if not, now might be a good time – it’ll help you to understand the efficacy of what you’ve got.
Ask yourself what would pay out if any of the three risks happens. If you die, what will be paid out by your company and any policies you have taken out yourself. If you go off sick, how long will you get sick pay for and how much? What happens after that? How long will your emergency fund last in that scenario? Do you need to shore it up?
If you have income protection insurance, is it still at the right level? If you’ve received a pay rise or promotion, chances are it needs reviewing. If you identify a shortfall, make a note to get it filled. Talk to your financial adviser, or go to get expert help from the good people at Lifesearch. Don’t let this drift. It’s at least as important as your portfolio, and yet people neglect their protection programme in favour of their investments every time.
Review Your to-do List
While you’ve been reviewing things, you’ll have written down some tasks to get done. Call Lifesearch re income protection. Review alternative platforms for your pension. Research Japanese funds to replace the duff one in your portfolio. Book the car in for MOT.
Go over your actions list and prioritise. Put a date to get them done in the calendar SOON. Resolve not to get to next year’s review and have to address the exact same things you said you’d do this year.
Review Your Priorities
Arguably, this could have been the first review point after getting your paperwork in line. Your priorities will drive everything you do in life, and your finances reflect that. In the sermon on the mount, Jesus said that where your treasure is, there will your heart be also. Whatever your priorities are in life, that’s where your money should be pointing.
If your overarching goal is to retire at age 50, all your investing, your savings rate, your budgeting will be working towards that. If, rather, you want to enjoy the journey and retire at a more ‘normal’ time of life, then that will impact your decisions too.
Discuss your priorities with your partner if you have one and set them together, committing to them as a team. Ask yourself if your current financial affairs adequately reflect your true priorities and if not, do something about it. Make the necessary changes now so that next year, you can smugly look back on a job well done.
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