If you’re like most people, you probably didn’t usher in the new financial year with any particular fanfare. After all, the dawn of a new fiscal year doesn’t bring with it the same excitement as New Year’s Eve (apologies of course to our tax and accountant friends…Happy new year to you guys! May all your deductions be large and allowable!).
New years – even financial ones – are nonetheless the perfect time to reflect on the past, and most importantly prepare for the future. This is particularly so when it comes to your investment portfolio.
So here are some of our top investment tips for the new financial year:
1. UNDERSTAND YOUR INVESTMENT FEES
Most of us don't have the time or inclination to track how much our investments are costing us. Let’s face it, deciphering product disclosure statements, advice statements and fee tables can be complicated, confusing and boring! The problem is investment fees can really add-up over time and have a dramatic impact on returns, particularly over the longer term. This is especially so in the current lower-return environment.
We often find our clients are surprised to discover just how much they had been paying away in fees and costs - and how much they save by switching to a low cost offering like Six Park. Mustering the time and energy to review your current investment fees may not be the most exciting way to spend half an hour or so – but it could save you substantial amounts over the long term. Start by asking some basic questions like:
• Do you know how much you are currently paying to your advisor and in fund management fees?
• Are you getting value for your money?
• And are you happy to keep paying for the services you are getting?
2. REVIEW YOUR SITUATION AND CIRCUMSTANCES
There is an old African proverb which says “when the music changes, so should the dance”. This adage applies equally to investing as it does to the disco floor. We all know that life has a habit of changing from time to time. Whether it be work, family situations or just life priorities in general, circumstances seldom stay constant from year to year. When changes occur, this often means we need to re-assess our investment plans to ensure they remain relevant and appropriate. A new year can be an opportune time for this reflection, to take stock of the recent changes and to think about your expectations for the coming year. Have your financial needs changed? Are your goals and plans still relevant? Is your portfolio positioned to reflect these aspects? One way to simplify this process is to try our online risk assessment by clicking here. Or drop us a line at firstname.lastname@example.org.
3. ASSESS YOUR ASSET ALLOCATIONS
Asset allocation is a key element of any long-term wealth creation strategy. After all, the way in which you mix and blend the various investments in your portfolio has a direct bearing on how your portfolio will perform over time and how well it will weather market changes and headwinds. To be truly effective, the selection of investments in your portfolio should be widely spread across different asset classes. They should also be tailored to into account your specific risk profile, financial objectives and investment horizon. And they should continually monitored to ensure they are positioned for long-term growth. With the advent of a new year, we recommend stepping back and taking a holistic look at your overall investment portfolio. Are you adequately diversified? Does your spread of investments match your goals and risk profile? And does the current environment necessitate any changes? You can read more about how we try to take the guesswork out of the asset allocation maze by clicking here.
4. THINK ABOUT REBALANCING
If you are managing your own investments, it is important to consider rebalancing of your portfolio. Even if your asset allocation strategy is sound, your portfolio will still need to be revisited on a regular basis to ensure that it is still appropriately positioned to deliver on your investment objectives. Over time, the various assets in your portfolio will deliver different returns, particularly as markets move and certain holdings outperform and underperform others. This can result in your portfolio drifting away from its target asset mix and inadvertently lead to an increase in your risk exposure, particularly if the mix becomes concentrated to higher risk (and potentially overpriced) asset classes and underexposed to more conservative investments. For these reasons, it is important that portfolios be periodically “rebalanced” back to its target asset mix. A wealth of research studies have shown that rebalanced portfolios generate higher returns and with less volatility than portfolios that were allowed to drift (read more here). If you are a Six Park client, we take care of the rebalancing process for you - closely monitoring the asset mix in your portfolio with us and undertaking periodic rebalancing at least annually to ensure your funds are allocated in line with your intended risk-return profile.
5. REVIEW YOUR PROVIDERS
If you use third parties to help you manage your investments, it makes sense to review their performance and approach from time to time. Consider the following:
• Do you trust your advisor and are you comfortable with dealing with those third parties?
• Have you benefited from the services you paid for? And were they worth the cost?
• Is the advice meeting your needs and objectives?
• Has the advisor performed in line with your expectations and according to with their representations?
The start of a new financial year may not be marked by fireworks, streamers and drunken countdowns. But it can be significant nonetheless. And the best part is it usually isn’t accompanied by a hangover or the guilt of resolutions broken too soon.