Over the last few months, you’ve read about the potential benefits of investing, what we consider when creating your risk profile, and how we can improve tax efficiency.
Now, read on to discover why we believe reflecting on your investment portfolio during our annual review meeting is a crucial part of managing your assets over the long term.
Reviewing your investments too frequently could encourage short-term thinking
Reviewing your investments provides an opportunity to ensure your portfolio still suits your needs and helps us understand whether you’re on track to meet your goals. So, how frequently should we be reviewing your portfolio?
With daily headlines about company stocks that have risen or fallen, it can seem like we should be checking your portfolio every day or week. Yet, this could encourage a short-term mindset when managing your investments.
Looking at investments too frequently can make it tempting to try and time the market. While selling high and buying low is something every investor wants, many factors affect the markets and there is a lot of academic research suggesting it’s impossible to consistently time it right. Moving in and out of the market could also mean you miss out on long-term growth opportunities.
Instead, we believe reviewing your portfolio once or twice a year is often enough for many long-term investors. This frequency should help us strike a balance between understanding how your portfolio is performing and focusing on the long term.
4 key questions we should answer during your review meeting
1. Have your long-term investing goals changed?
The reasons you’re investing may affect which options are right for you. As well as looking at figures, we believe taking time to review your investment goals is important.
If your goals have changed, it could affect your investment time frame and how much risk is appropriate. As a result, we might adjust your portfolio to ensure it continues to reflect the outcomes you want.
2. Are your financial circumstances the same?
As well as clarifying your goals, we will want to consider if your financial circumstances have changed since we last met.
Again, your financial security and the other assets you hold often influence your risk profile when investing. So, significant changes to your situation could mean adjustments to your portfolio make sense.
For example, if you’re approaching retirement, we may advise you to reduce the amount of risk you’re taking to preserve your wealth. Or, if you’ve received a wealth boost, we might recommend you increase the size of your portfolio and allocate a greater proportion of it to higher-risk investments.
3. How has your portfolio performed?
Whilst we believe it’s a good idea not to review your portfolio’s performance too frequently, returns are a crucial part of the review process.
If your portfolio hasn’t performed as well as we’d hoped, we would advise you to be cautious of making knee-jerk decisions in response. The key thing is to focus on long-term trends rather than short-term movements.
Volatility is part of investing, and it’s normal to see the daily value of your portfolio rise and fall. Yet, when you look at the performance over the years, the peaks and troughs often smooth out.
Even aftermarket shocks, such as when the markets fell sharply early on in the Covid-19 pandemic, historically, they have recovered and gone on to deliver returns when you look at the bigger picture.
This is why rather than providing you with just the last 6 to 12 months of performance data in our review meetings, we also consider how your portfolio has performed over the longer term.
4. What investment fees have you paid?
The fees you pay when investing will reduce your overall returns. This is why our Investment Philosophy focuses on keeping your investment costs as low as possible, something we monitor for you as part of the ongoing governance of our Centralised Investment Proposition.
After all, if we can save 0.5% per annum in fees, this gives you an extra 0.5% per annum of return in your portfolio. Whilst such savings might not sound significant in isolation, compounded over the longer term, they can make a real difference to the returns we achieve for you.
We urge you to contact us if anything significant changes which might impact how we are investing your wealth or you are very welcome to raise such issues at your next annual review meeting.
Risk warning
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.