The importance of portfolio management

Whatever your financial goals, and whether you have a short-term or long-term aim in mind, it is vital to regularly track, monitor, review and to actively manage your investments.

Before beginning down the path of financial investments, it's important to remember that the value of your investments can fall as well as rise and that overall you could get back less than you invest. If you’re not sure about investing, seek independent, professional, regulated, advice.

Before deciding on an investment strategy, you will need to take into consideration not only your personal life goals, but important other factors such as your attitude to risk, your attitude towards ethical investments, and your investment timeframe. These factors all combine to affect your risk-return levels.

Simply making investments, even into mainstream opportunities, without taking these factors fully into consideration is likely to mean that your portfolio lacks balance and that you take on more risk than is necessary or you are comfortable with. You should fully understand the risks involved with your investment plan from the outset, and for that you may need an external financial advice professional who manages the portfolio on your behalf.

It’s important to be honest when considering both your strategic objectives and your investment objectives. If you aren’t comfortable or confident enough to select your own investments, or if you simply don’t know which funds or opportunities are the best and most appropriate for your needs, you should definitely seek professional financial advice before you begin.

Portfolio Management Services companies will permit you to be involved in your financial plan in a passive portfolio management capacity. Based on their advice on what to invest in, the investments you hold in your portfolio will still overall depend entirely on your own personal goals, approach to risk, ethical concerns, preferred investment term and your level of previous investment experience. 

You could also consider investing as part of a group, via collective investment opportunities such as unit trusts: - usually these would be either Open Ended Investment Companies (OEICs) or Exchange Traded Funds (ETFs). For less experienced investors, investment trusts are usually a good starting point as your money is pooled together with other investors money and invested on your behalf by a fund manager. Their management involves the overall management strategies not just for yourself but for others, and they will be responsible for the return profile of the fund.

If you are selecting your funds yourself, make sure that you never just go for the funds that top a performance league table, as these tables are often subjective and could be skewed by the company paying for them to be produced in order to attract new investors. Even if you’re looking at statistically provable and accurate data, do remember that past performance is no guarantee of future performance. You should never select a fund based solely on backward looking data. Instead, you should research each fund separately until you are sure that it is right for your needs, whilst considering things like charges, longevity, likely upcoming market and economic changes too.

Depending on whether you’ve invested your money into actively managed funds, or into passively managed tracker funds, the overall costs of that fund management can make a big dent in your returns. If you’re investing in active funds, this means you’re fairly confidently  expecting your chosen fund managers to achieve better financial returns for you; rather than, say, just investing across all possible investments in a market or index. You’ll usually need to pay higher fees for actively managed funds, so be sure of this before you start. In general, funds are a very good way to diversify your investment portfolio, and, if selected carefully, they can be cost effective. Just make sure that you understand what you’re paying and why you’re being charged those amounts.

Whether managed or passive, it’s good practice to regularly review your investments so that you know whether they’re on track to meet your planned financial objectives. Also, consider that factors such as the level of risk you’re prepared to accept may change over time, as may your approach to ethical investing, and either of these things may dramatically affect your overall asset allocation. (NB - asset allocation is the overall term for how you choose to split your money between the different available types of investments such as shares, fixed income securities, cash and property, for example).

As time goes by, you’ll likely have to make adjustments to your portfolio to stay on track to hit your financial investment requirements. The performance of your funds, and other asset classes you have invested in, will vary both with time and with economic / market fluctuations. This is called ‘rebalancing’, and means your portfolio will stand a better chance of remaining on target to meet your overall objectives.

Rebalancing your investment portfolio regularly is an important part of portfolio management because it can bring your asset allocation, and your overall return on investment, back in line with your overall projections. Over time and due to changing market and environmental situations, your initial asset allocation may change because of the way your investments perform. For instance, you may start your first year with 10% of your money in shares, but if they do particularly well, you could increase your % share of your overall portfolio in the following year.

The ever-changing value of your investments, and the ever-changing nature of the markets and the economy, combines to mean that your initial asset allocation may no longer match your investment goals, and so it’s inevitable that at various points you’ll need to make adjustments. Monitoring and rebalancing your portfolio is important, but so is not amending too much. Investing is a long term pursuit and monitoring your investments is about watching how they perform and giving them a nudge in the right direction from time to time, rather than over-managing and making constant - and often unnecessary - adjustments.

Start planning your future. Speak to us today.

Contact Us

Seventy Financial Planning
The Apple Store, Haggs Farm,
Haggs Road, Follifoot, Harrogate,

01423 611004

[email protected]

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