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How to manage your portfolio effectively

  • 4 min reading time
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Building an investment portfolio isn’t a one-off exercise. By revisiting your portfolio regularly, you can make sure your choices are fine-tuned to your longer-term financial goals and risk tolerance.

What you will learn

  • Why investing is not a short-term exercise
  • Why you might need to change the assets in your portfolio
  • When your portfolio might be carrying too much risk

If you’ve spent time researching and finding the right blend of investments, it can be tempting to think your job is done. Investing, however, shouldn’t be a matter of ‘set and forget’.

Your life goals are likely to change throughout your lifetime, as will the level of risk you are willing to take when investing. Your investments’ performance will also vary over time, which means you may need to adjust – or ‘manage’ – your portfolio.

Reaching for your goals

During their lifetime, most people share some common life stages: getting their first job, buying a house, having a baby, approaching retirement, and retiring.

As you enter each of these stages, you’ll need to adopt a different investment approach that reflects both the disposable income and time you have available.

Say you want to save a deposit for a new home. This is a relatively short-term goal, which may mean it is wise to have less exposure to equities (shares) in your portfolio, as there is less time to recover from any stock market downturns.

Starting to build a nest egg for retirement, however, is a longer-term ambition, so your investments should have time to recover from any market dips. Subsequently, you might consider higher-risk investments.

It’s worth noting that retirees now have more choice about how they use their savings once they finish work– they may choose a pension income drawdown over an annuity, for instance. As a result, they may need to retain higher-risk assets in their portfolio.

You can read more about this in our article about how blending assets can protect your finances.

Portfolio in the balance

If one asset performs more strongly than others it can begin to make up a larger proportion of your portfolio. Similarly, if an asset underperforms, its relative ‘weighting’ in your portfolio will reduce. This can result in your portfolio’s asset allocation becoming skewed, meaning the level of risk could be higher or lower than you want.

Did you know?

Over time, some investments in your portfolio will perform better, while others will do less well. As this will change the amount of risk in your portfolio, you may ‘rebalance’, or adjust, this ratio by buying and selling assets.

Let’s say you created a portfolio consisting of 50% equities and 50% bonds. If the equities perform more strongly than the bonds, you could end up with a 70/30 equity/bond ratio, which would be higher-risk.

You can ‘rebalance’ your portfolio by partially selling off the strong performers and using the proceeds to buy more of the weaker performers. This will bring the risk weighting back in line with your original goals.

Balancing your fees

Tinkering excessively with your portfolio can result in unnecessary fees, which will eat into your overall profits.

However, it is generally considered sensible to check how your investments are doing once a month and carry out an in-depth review at least once a year.

Managing your portfolio doesn’t mean making lots of unnecessary changes. Evidence suggests buying and holding investments is the best approach – find out more by reading our article on buying and holding investments.

Risk notice

Any information provided should not be considered personal advice. Past performance is not a guide to future performance. You may not get back the full amount you invest. If you have any doubts about making your own investment decisions, seek financial advice.

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