Investing shouldn’t raise your pulse. Building a portfolio, sitting back and tuning out the market noise is often good practice. And yet, it’s a good idea to check on your financial plan about once a year.
Experience shows that staying the course throughout the ups and downs of the markets will typically yield the best results for your money. But if circumstances change, be it in your personal life, in the markets or on the regulatory front, your investments may benefit from some adjustments.
What has changed in the markets?
In times of considerable market movements, your portfolio is likely to shift. If, say, share prices skyrocket during a phase of strong economic recovery while bond prices stagnate, shares will make up a growing proportion of your portfolio. A higher allocation to shares means your portfolio may contain more risky assets than you initially intended.
Some fluctuation is normal since asset prices are always moving up and down. But if your share and bond allocations drift too far (by more than 5 percentage points or so), it may make sense to shift some assets and stay true to your strategy. This is called rebalancing your portfolio. While rebalancing means you may be trading a small portion of your portfolio regularly, it is actually a way of staying the course.
What has changed for you personally?
Life has a way of taking unexpected turns that you likely didn’t factor into your investment strategy. Changes in your income or retirement plans, or a financial windfall or setback may mean that you need to adjust your savings goal and your regular contributions into your portfolio. If you’ve received a pay raise, consider increasing your monthly savings plan as well.
Having a baby, starting a business, changing careers or other life events may change your attitude towards risk. In that case, a change to your investment strategy may be merited.
Lastly, as you approach the end of your investment horizon, for example when you get close to retirement, it’s often a good idea to lower the risk in your portfolio. The last thing you want is for a market crisis to wipe out a good part of your earnings just before you need to withdraw your savings. That’s why allocating a growing portion of your portfolio to bonds as you approach your goal is good practice. So-called target retirement funds even do this for you. These funds typically combine shares and bonds within one portfolio and will shift the allocation towards more stable assets as you approach the target date.
Have any rules and regulations changed?
In order to make the most of your savings, it’s good to keep an eye on rules and regulations around investing. Check, for example, if any rules around taxation, the cost of investing, or your yearly ISA allowance have changed. Use these levers to get the most out of your investments.
Don’t make changes in a whim
Any change to your portfolio should be carefully considered, and it should be made for the long term. A short-term development like a market crisis or boom, for example, is not usually a good reason to make changes to your strategy. Keep your eyes on your goal and make changes when you’re confident that these will help you reach it.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
This article is designed for use by, and is directed only at persons resident in the UK.
The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.
Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.
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