Although we might begrudge the annual routine of taking our cars in for their MOTs, in reality, those essential maintenance checks keep us safe and secure for another 12 months ahead. The same principles can be applied to your investment portfolio. Read on to find out how an annual check-up and our five-point checklist can keep you on the road to success.
Investment portfolio asset allocation
Over the course of a year, general wear and tear inevitably leads to minor issues cropping up with a car. Brake light bulbs can fail, your brake fluid might run low or your wheel alignment might be out of kilter. Small issues can accumulate and lead to bigger problems if left untreated. Believe it or not, the same can be said of your investment mix. Regular health checks can make the difference between a worn out portfolio and a finely tuned one.
“Even the most carefully selected investment portfolios can drift over time,” says Jon Landy, Director at Acumen Financial Partnership. “Markets rarely develop in unison with investments. It takes regular assessments and adjustments to keep an investment portfolio performing at its best.”
Given the shifting sands of the global economic landscape, it’s important to understand the distinctive characteristics of different investments to safeguard against any market volatility. “Different investment assets offer differing behaviours. For instance, equities can deliver strong capital growth but bonds are much more robust in times of volatility,” Jon continues.
“Understanding these behaviours and determining the right mixture of these investments is one of the most effective ways of achieving a long-term investment goal. The optimal investment blend is known as your portfolio’s ‘asset allocation’. Getting this right has been shown to be one of the most effective ways of managing your portfolio’s success over time.
“That’s why an annual MOT of your investment allocation can much such a difference.”
5 tips for optimal investment allocation
As part of the regular maintenance of your investments, Acumen recommends keeping this five-point checklist in mind to keep on top of the long-term accomplishments of your investment mix.
1. Identify your risk tolerance
During the process of selecting your investment allocation, it’s essential to be 100% clear about your tolerance to risk. A higher degree of riskier assets (such as commodities, equities and property) will yield higher returns than lower-risk assets (like cash and bonds). Exactly how much risk are you comfortable with in order to achieve your specified investment objectives?
2. Match risk to your age and timeline
Younger investors with a longer trajectory of investment time at their disposal can afford to take greater risks with their portfolios because they have the luxury of having time to iron out any blips along the way. However, those nearing retirement may prefer a more conservative approach to safeguard their capital. Where you are on the investment timeline makes a huge difference.
3. Let your goals guide your investments
Your investment goals will typically be a major barometer of your investment allocation choices. Let’s say your ultimate objective is to secure a steady income stream. With the current climate of poorly yielding, low interest rates for savers, a more effective route would be to consider a greater allocation set aside for income yielding assets – such as property.
4. Assess and adjust regularly
As we always say: nothing thrives in an environment of neglect. Especially not investments. What was an appropriate investment allocation five years ago might not suit your present day needs and goals. Fluctuations in the market can quickly alter the riskiness of a portfolio’s assets – which is why it’s important to have an annual MOT.
5. Call in the experts
Would you carry out your own MOT? Unless you’re a mechanic, we highly doubt it! Similarly, unless you’re a fund manager then speaking to an expert investment manager is the safest and most effective means of safeguarding the performance of your investment mix. Acumen can advise you on the best way to achieve your aims and help to ensure your investments realise the outcomes you want.
To discuss your investments with one of Acumen’s expert investment managers, or for any further information about any of our services, please call us on 0151 520 4353 or email [email protected] today.