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Spring clean your
portfolio
Saving something for a rainy day might be the biggest
cliché in the book, but as far as your portfolio
goes, making the most of the April showers and giving
your investments a thorough going over won’t be
something you regret
Spring-cleaning is an essential part of keeping your investments
working hard for you and ensuring that your original targets
are still being met, while at the same time making sure
that you are in the best position to ride out the highs
and lows of the next UK tax year.
The notion of a portfolio overhaul might immediately awaken
your thirst for hunting out promising new stock, but in
the name of diversification it might actually be wiser
to sell in order to restore the once healthy balance –
especially if you want to make the most of your annual
CGT allowance.
Commenting on the tricky and sometimes loathsome issue
of selling up, Mark Dampier, head of research at Hargreaves
Lansdown, advises: “Selling is a much underrated
activity, and is often quite hard because people become
too emotionally attached to their investments. The question
you should ask yourself is: would I buy this product today?
If the answer is no, then you should think hard about
selling.”
However the aforementioned tax benefits of selling below
par stock should only dictate part of this financial decision.
Giving your portfolio a revamp will ultimately ensure
that your money works its hardest, by identifying and
remedying potential problems before they occur.
As an expat investor you will probably find that your
assets are scattered across the globe and with this in
mind, a geographical breakdown is a sensible first step.
Mapping out the locations of your existing stock will
enable you to see if you are overweight in any particular
countries, and by taking your historic decisions into
account you may see patterns which can help you plan for
the future.
Once the basic ground is identified, you need to delve
a little deeper to remedy any problems – present
or future. Setting your past losses against current gains
relevant to the investment climate and market behaviour
is a good idea, as is employing a new fund manager or
having that long-overdue chat with your IFA. If these
seem like big steps for smaller scale investors, then
even just collecting up all your paperwork and putting
it all into one folder or Excel spreadsheet can help you
view it at a glance.
Out with the old and in with the new
When buying, it is important to remember that every passing
tax year sees a whole host of new, all-singing-all-dancing
investments opportunities to pick and choose from. The
plethora of developments within the financial services
industry in recent years complement these– with
the newest of note being REITs.
The golden rule as far as your investment portfolio is
concerned is to make sure that you haven’t put all
your eggs in one basket. Investing too heavily in one
area increases risk and means that you stand to lose if
the market takes a sharp downturn. Instead, the sensible
approach is to make sure that you have a good spread of
regularly monitored assets across cash, shares, bonds
and commercial property.
The key to rebalancing is to cast your mind back to your
original aims. After starting out with a 50/50 balance
of cash and equities, a steep curve in the equities market
may now mean that that element accounts for more than
half of your holdings, skewing them 75/25. Selling part
of this and reinvesting in cash is a sensible move that
will minimise risk by restoring the original equilibrium,
whilst allowing you to making a capital gain.
This is where the advice of a specialist offshore IFA
might come in handy, but if you are planning to go it
alone instead, good starting questions to ask are: ‘Is
my portfolio geared towards income or growth?’,
‘Do I have too much money in shares and not enough
in secure investments?’ or perhaps ‘Do I have
a good spread? Am I underweight in any respect?’
It is also a good idea to weigh up your attitude to risk
and see just how conservative your investment choices
are, or indeed how aggressive they might have become.
Another good resource for self-diagnosis is a portfolio
analysis tool such as those on the Best Invest and Morning
Star websites.
The next step
Any profits you make from selling can be ploughed back
into the stock market to fund another welcome return.
However, if you think that selling up will take you over
your annual UK CGT limit it is worth looking into beforehand,
as living offshore will affect your UK tax limitations.
One way that you can minimise the impact is to transfer
assets to your spouse if they have an unused or partially
used CGT allowance for the year – something which
is wholly permitted under UK law.
Another attractive option for cash-rich, time-poor types
might be to hand over authority to either an individual
fund manager or a ‘fund of funds,’ which is
an investment fund employing a manager to keep track of
all of them. Another alternative might be to place everything
on one financial platform such as a wrap account or a
fund supermarket. This is a really good one to consider
if you have a varied spread of investments to keep track
of, especially as the latter can end up being be a cheaper
way to actively manage your portfolio.
The main thing to remember is that investment markets
are continually evolving and things change in the blink
of an eye. It’s worth digging around a bit further
than just rummaging in cupboards and clearing out the
loft to check that everything is in order.
As investors should know, the mechanics of performance
are an integral part to investing. Thus fund managers
are a key element and it’s worth checking that all
is still well – if a trusted fund manager has changed
jobs, it is possible that the fund could take a nosedive.
Similarly, a company buy-out might mean the fund you first
invested in has changed direction, and thus may not meet
your objectives anymore. If either happens, your tidy
investment could end up in tatters so it might be worthwhile
re-examining your position.
Other catalysts for a heave-ho are that your initial goals
for the fund no longer apply to its current positioning,
your asset allocation does not suit your needs anymore,
or that the fixed period which prevented you from making
changes (such as the imposition of a withdrawal penalty)
has ended, meaning that you need to review and make some
cut-throat changes.
F&C have analysed more than 5,000 funds since 1995
and found that two thirds of those wallowing down in the
bottom 25 per cent over a three-year period were no longer
there two-years later. In fact, nearly a quarter did a
total about-face and settled themselves comfortably in
the top quartile. However it is worth remembering that
this can work both ways and top-performing funds can plunge
right down to the bottom of the pile – as Sir John
Harvey-Jones once said: ‘There are times when you
have to kill your favourite children.’
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