Spring-cleaning your investment portfolio should be a thoughtful process, not just a routine task.
Spring-cleaning your investment portfolio involves a thorough review and reorganisation of your investments to ensure they still align with your financial goals, risk tolerance, and the current economic environment. Here’s a step-by-step guide to help you through the process:
1. Review your financial goals
Reassess your objectives: Have your financial goals changed since you last looked at your portfolio? Whether it’s retirement, buying a home, or funding education, spring cleaning will help match your investments to your current goals.
2. Evaluate performance
Portfolio performance: Assess the overall return of your portfolio against your expectations and market indices. If the portfolio has not met expectations, perhaps it is time to discuss this with an investment adviser. Were your expectations reasonable? How has the rest of the market performed?
3. Asset allocation
Rebalance if necessary: Over time, some investments might have grown or shrunk more than others, skewing your intended asset allocation. Rebalancing involves selling or buying assets to bring your portfolio back to your desired allocation. Some of the more risky investments may have done well but now may form a disproportionate part of your portfolio which may mean the overall level of risk is now higher than you would be comfortable with.
Consider the economic outlook: Adjust your allocation based on current market conditions, interest rates, inflation rates, and economic forecasts.
4. Cost analysis
Fees and Expenses: During spring cleaning, evaluate the costs associated with each investment, like management fees, trading fees, or loads. High fees can significantly eat into your returns over time. Speak to an investment adviser to see how competitive your fees are.
In the Czech Republic, a lot of the funds sold to investors have high annual fees and expensive buying costs (bid-offer spread) that can have a huge impact on performance. Work with advisers who do not take commissions and do not claim ‘advice is free as we are paid by the provider’- in these cases there could be large hidden commissions.
5. Tax considerations
Tax efficiency: Look for opportunities to reduce tax liabilities. Certain products have tax advantages and the timing of the sale of assets can also reduce tax.
6. Eliminate underperformers
Cut losses or hold: Decide whether to sell assets that are consistently underperforming or if there’s still potential for recovery. Remember, past performance isn’t a guaranteed predictor of future results.
7. Update your strategy
New Investments: Consider if there are new investment opportunities you should explore.
Sustainability: If ESG (Environmental, Social, Governance) investing interests you, now might be the time to integrate these factors into your decisions.
8. Consult professionals
Financial Advisor: If you’re unsure about complex decisions or if your portfolio is large, consider consulting with a financial advisor.
Conclusion
Spring-cleaning your investment portfolio should be a thoughtful process, not just a routine task. It’s an opportunity to ensure your investments are working as hard as possible towards achieving your financial goals. Remember, this isn’t just about pruning but also about nurturing your investments to adapt to new growth opportunities.
Is there a specific aspect of portfolio management or an investment type you’d like to explore further? Feel free to contact us.
