We often hear the complaint, particularly with pensions, that they just haven’t performed very well. Our response is “that is because the investment funds that have been used over the years have not been managed”.
If you buy a car you know it is sensible to have a regular service to ensure that it is properly maintained the aim being to avoid it breaking down and you having to pay nasty repair bills. It is the same with your investments. When you first invest your money the adviser will have spent much time researching which funds to use to provide you with an appropriate portfolio. Over time some of those funds may fall out of favour which may be for numerous reasons: the fund manager may change, the fund may alter its investment strategy or the geographical sector may stop performing. Also over time your own attitude to investment risk may alter and the original appropriate portfolio may no longer be suitable.
Reviewing your investment portfolio is essential if you want your money to work as hard as possible for you. It is a service that carries a cost but it is well worth the price. Our evidence below shows that even in the toughest of global financial markets, consistent management and regular reviews pays for itself as there are always gains to be made somewhere. Here are a couple of back tested examples from Savvy Financial Plannings own clients’ portfolios:
2 of Savvys Medium Risk Portfolios vs a Halifax Balanced Portfolio
2 of Savvys Low Risk Portfolios vs a Zurich Deposit & Treasury account and a TSB Deposit account
The other advantage with having your investment portfolio reviewed is to ensure that the correct level of risk is maintained. A good portfolio will be diversified, meaning that it will have a spread of investment across different sectors i.e. Equity, Fixed Interest and Property, and geographical locations. Different sectors will perform better than others at different times, the idea being that you will obtain steady growth over time, whatever the market conditions dictate. If a portfolio is left unchecked you may find that it becomes overweight in certain sectors which will mean that either your portfolio ends up higher risk, i.e. your exposure to equities is higher than it should be, or that it is not maximising its potential, i.e. your exposure to Fixed Interest and Cash is too high. When your portfolio is reviewed there may be no need to alter any funds but there could be a need to rebalance and bring the portfolio back in line with your attitude to risk.
The benefits of investment management are:
- 1. Maintain the correct level of risk
- 2. Alter the portfolio construction when necessary
- 3. Result in additional performance which should outweigh the cost
- 4. Allow the portfolio to change as your requirements change
- 5. Ensure that your investments remain at the top of their game
* Past performance is not a guide to future performance and as with any investment, the value of funds can go up or down and may be worth less than what was paid in.