You need to consider what you really want from your
investments. Knowing yourself, your needs and financial and lifestyle goals,
and your appetite for risk is a good start.
Consider your reasons for investing
It’s important to know why you’re investing.
The first step is to consider your financial situation and
your reasons for investing. For example, you might be:
• looking for a way to achieve higher returns than on your
cash savings
• putting money aside to help pay for a specific goal, such
as your children’s or grandchildren’s education or their future wedding
• planning for your retirement
Determining your reasons for investing now will help you
work out your investment objectives and influence how your investments are
managed in future.
Decide on how long to invest
If you’re investing with a specific financial and lifestyle
goal in mind, you’ve probably got a date in mind too. If you’ve got a few
goals, some may be further away in time than others, so you’ll need to have
different strategies for your different investments. Investments rise and fall
in value, so it’s sensible to use cash savings for your short-term goals and
invest for your longer-term goals.
Short-term
Most investments need at least a five-year commitment, but
there are other options if you don’t want to invest for this long, such as cash
savings.
Medium-term
Committing your money for at least five years opens up a
selection of investments that might suit you. Your investments make up your ‘portfolio’
and if appropriate should contain a mix of funds investing in shares, bonds and
other assets, or a mixture of these, which are carefully selected and monitored
for performance.
Long-term
Let’s say you start investing for your retirement when
you’re fairly young. You might have 25 or 35 years before you need to start
drawing money from your investments. With time on your side, you might consider
riskier funds that can offer the chance of bigger returns in exchange for an
increased risk of losing your money.
As you approach retirement, you might sell off some of these
riskier investments and move to safer options with the aim of protecting your investments
and their returns.
How much time you have will make a big impact on creating
your investment portfolio. As a general rule, the longer you hold investments,
the better the chance they’ll outperform cash – but there can never be a guarantee
of this.
Establish an investment plan
Once you’re happy and have set your financial and lifestyle
goals, the next step is to get your investment portfolio in place. We’ll help
you identify the right type of investment options suitable for you.
Build a diversified portfolio
Holding a balanced, diversified portfolio with a mix of
investments will help protect it from the ups and downs of the markets.
Different types of investments perform well under different economic
conditions. By diversifying your portfolio, you can aim to make these differences
in performance work for you.
Diversifying your portfolio in a few different ways through
funds that invest across:
• different types of investments
• different countries and markets
• different types of industries and companies
A diversified portfolio is likely to include a wide mix of
investment types, markets and industries. How much you invest in each is called
your ‘asset allocation’.
Make the most of tax allowances
As well as deciding what to invest in, think about how
you’ll hold your investments. Some types of tax-efficient accounts normally
allow you to keep more of the returns you make. It’s always worth thinking
about whether you’re making the most of your tax allowances too.
You also need to bear in mind that these tax rules can
change at any time, and the value of any particular tax treatment to you will
depend on your individual circumstances.
Review your portfolio periodically
Periodically checking to see if your portfolio aligns with
your goals is an important aspect of investing.
These are some aspects of your portfolio you may want to
check up on annually:
Changes to your financial goals
Has something happened in your life that calls for a
fundamental change to your financial life plan? Maybe a change in circumstances
has changed your time horizon or the amount of risk you’re willing to handle.
If so, it’s important to take a hard look at your portfolio to determine
whether it aligns with your revised financial goals.
Asset allocation
An important part of investment planning is setting an asset
allocation that you feel comfortable with. Although your portfolio may have
been in line with your desired asset allocation at the beginning of the year depending
on the performance of your portfolio, your asset allocation may have changed
over the period in question. If your actual allocations are outside of your
targets, then perhaps it’s time to readjust your portfolio to get it back in
line with your original targets.
Diversification
Along with a portfolio with a proper asset class balance,
you will want to ensure that you’re properly diversified inside each asset
class.
Performance
Look at whether there are certain aspects of your portfolio
that need rebalancing. You may also want to consider selling to help offset
capital gains you might take throughout the year.
What Next?
The beginning of a new year is the perfect time to consider
your existing financial goals and decide if they still align with your
priorities. It may also be a good time to check if you have the right systems
and support needed to achieve these goals when you want to. If you’d like to
know more about how we can help you achieve your financial and life
goals, please
contact us.
The value of your investments (and any income from them)
can go down as well as up, and you may not get back the full amount you
invested.
Information is based on our current understanding of
taxation legislation and regulations. Any levels and bases of, and reliefs
from, taxation are subject to change.