Friday, 10 October 2014

5 Steps to Review Your Investment Portfolio

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Now is a popular time of year that I sit down with many of my clients to review their financial situation and investments. But what are the steps you should take when reviewing your investment portfolio?

As a specialist investment manager for private clients we will normally do an in depth review including the underlying holdings of the portfolio for each individual client but there are 5 basic first steps everyone should take:

Step 1: Review Your Asset Allocation

Most client portfolios will have a mix of asset classes that will often include equities, fixed interest, property and cash. It’s important to make sure that the portfolio still reflects your current goals and attitude to risk.

For most people who take a long term view with their portfolios there is a good chance they are overly exposed toward equities now. Most developed market equity funds have had good returns recently, whereas most fixed-income investments have not. If your required weighting of an asset class is just a few percentage points out from your target there is not much to be concerned about, however where the allocation of an asset is more/less than 5-10% out of the target range it may be time to re-balance things. That's more important the closer you are to the end of your time frame for investment. Where you have a heavy equity focus it may be time to start locking in some of those gains or looking at options that offer more protection on the downside.

Step 2: Check Your Equity Sector Positioning

Look at the holdings you have within your equity investments to review which sectors most of your money is within. It’s important not to be too over exposed to a specific sector eg, technology or financials. Diversification is just as important when it comes to sector weightings in the portfolio as it is when looking at overall asset allocation.

When it comes to sectors for investment, generally the technology sector looks the most expensive right now. On the other side, stocks in the basic materials and energy sectors look attractive based on their price/fair values.

Step 3: Think Globally

The next step is to check how your equity exposure is apportioned internationally. Developed market equities have returned bigger numbers than emerging markets for most of the last five years. This means that many clients are perhaps not diverse enough in their exposure to emerging markets, especially where they have a longer investment time frame and should be taking more risk. Investors should not ignore global market capitalization when building their portfolios. If you're closer to or in retirement, it makes sense to reduce the emerging market weighting.

Step 4: Assess Your Fixed-Income Positioning

Increasing interest rates are a concern for a bond investor, however, the biggest concern when I see most portfolio’s is the poorer quality of debt. High-yield bond funds have seen strong inflows recently but many mixed asset funds have also been reducing quality to increase yield. As part of a portfolio review make sure that your fixed interest / bond holdings offer true diversification.

Step 5: Take Stock of Liquid Reserves

As well as reconsidering your long term investment allocations, you should also check your cash reserves. Have you got 3-6 months cash in your bank account in case of emergency? If you are retired this portion should be even greater around 1-2 years of expenses is recommended. If you have more than this it may be time to consider investing more toward your long term portfolio to potentially generate better returns and keep up with the impacts of inflation on your net worth.


In summary you need to go through the basics of your portfolio and check that it matches with your current attitude to risk, the investment goals that you have and the timescale for the investment. If you want professional advice on your portfolio, feel free to contact me for a complimentary review of your investments on 

Have a great day, Andrew Lumley-Holmes.

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