In the final post in this series, here are some quick-fire things for you to consider when you’re looking at your portfolio.
Rebalance and/or Reallocate
In light of your revised timescales, you might want to reallocate your investments or rebalance back to the original allocation. Rebalancing is a really important discipline for investors, even though it seems counterintuitive.
The idea is that you sell the higher-performing parts of your portfolio and buy the lower-performing ones. Madness! Except that it isn’t because what you’re essentially doing is selling high and buying low, which is perfect.
It keeps your portfolio in balance, and crucially keeps its risk level in check. If you start out with a 50:50 equity and bond portfolio, eventually, the equities will grow and the bonds will probably trickle along fairly nicely.
Left unchecked, you could end up with an 80:20 equity and bond portfolio which is a very different beast, and will experience much larger swings when markets are volatile. Then, it becomes a riskier portfolio.
Rebalancing doesn’t need to be done any more than once a year, and then only if the portfolio gets out of whack to a degree that makes you uncomfortable. Set tolerances, for example, if your allocations go off by more than 5% or 10%, that’s the trigger to rebalance.
If things have changed with your timescales or your plans generally, then look again at the allocation you have chosen. Do they need to change in light of the new information? Revisit your plan, and make any changes necessary.
While making changes, have a mind to your tax allowances. If you’re investing in pensions and ISAs, this won’t be very relevant to you, but if you have significant wealth and have money unwrapped, then you might want to consider harvesting capital gains or losses.
Chances are that if this applies to you, you’re already aware and are doing it, so I’ll leave that there. Just make sure your money is invested as tax-efficiently as possible.
Increase Your Contributions
We covered this in the annual review checklist podcast, but it’s worth another reminder here. Should or could you be paying in any more to your investments? Remember, smaller regular increments are less painful than larger infrequent ones – little and often is the key to building wealth over time.
Set Criteria for ad-hoc Reviews
And finally, while I think the annually is plenty often enough to be reviewing your portfolio there may be times when it’s worth putting in an ad hoc review. Important note: volatile markets is probably not the time to be making changes, so just commit to riding those out.
But if you’re suddenly changing job, or find out you’re expecting or some other big life-event happens, let this trigger a review of your finances generally, and your portfolio as part of that.
