I often meet people who have a collection of investments gathered up over the years from various different banks and advisers.
What I often find is that the investments have rarely been properly reviewed and are often not doing the job they were meant to.
When building a successful portfolio it is important to have a strategy that includes continuously reviewing the investments within it. A robust review strategy should be process based and not involve emotion or sentiment.
We all know that we should buy low and sell high, but without a process, it is easy to get emotionally attached to investments that have gone up in value and therefore holding on to assets longer than we should.A good example of this was the housing market herein the mid 2000s when investors should have sold when the market was high but instead were more likely to buy further properties at an expensive time. Human nature pushes us towards selling investments that have fallen in value and buying other investments after they have risen in value –completely the opposite of what we should do.
A robust review process should have several components. Firstly, rebalancing regularly can both reduce risk and increase return. It involves selling the gains in parts of the portfolio that has done well and reinvesting into the other parts of the portfolio that are better value.
Secondly, the fund managers that look after each component of a portfolio should be continuously reviewed. Thirdly, a portfolio should be tactically adjusted to take account of political and environmental changes.
David Hill is a Chartered Financial Planner and Independent Investment Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email firstname.lastname@example.org or see www.hillsfinancialplanning.co.uk