The January weigh in: putting your portfolio on the scales

Hopping on the scales in the first week of the new year is no-one’s favourite task but the January weigh in is an opportunity to reassess more than your exercise and diet plan. When was the last time you ran a health check on your portfolio?

As different sectors, asset classes and economies perform differently over the course of a year, the value of your investments can also shift. Some of your holdings may have ‘put on weight’ (gained in value), while others may have fallen.

In short, what was a perfectly diversified portfolio a year ago may now need some tweaking to optimise your chances of investing success and help protect your savings for the year to come.

What does this mean, practically speaking?

Say you’ve built a balanced growth portfolio along the lines of our DIY portfolio suggestions, with a certain percentage of your money in UK, European, US, Asian and emerging market equities (as well as bond and absolute return) funds.

It's been a solid year* for equities with the majority of markets posting solid gains. China is up a spectacular 38%. In contrast, some bonds have posted small negative returns. These movements may be reflected in your portfolio returns – potentially pushing up the percentage of your total money now sitting in those assets.

Of course, if you own units in managed funds it’s important to remember that fund managers select specific stocks (as opposed to just investing in an index), so your portfolio performance won’t necessarily mirror market movements. These benchmarks can help guide expectations, though.

Why does it matter?

If one of your investments is significantly outperforming everything else, it is tempting to hold on to it or even increase your stake, but holding a large percentage of your money in any one investment increases your exposure to risk. Simply by failing to address imbalances that may occur naturally after significant price gains or falls, you could be introducing more risk into your portfolio than that with which you’re truly comfortable.

It’s a question of both risk and opportunity. As we all know, investment values can fall as well as rise and not even the professionals can always predict when markets, currencies or economies will take a tumble.

It’s not all doom and gloom though. On the flipside, re-balancing may free up some capital to take advantage of new opportunities.

What steps can you take?

  1. When you review your portfolio it's a good idea to take a step back and re-familiarise yourself with your investment goals. What are they, and have they changed?
  2. You may also like to think about your attitude to risk. Is it still the same or has that, too, changed?
  3. With points one and two in mind, take a look at the asset allocation and geographical spread of your portfolio. Does it look about right or do you think you need to adjust it?
  4. Rebalance your portfolio if you think necessary and fill any gaps you have discovered. Remember, you can switch for free on the Chelsea FundStore.
  5. Keep checking our website regularly and subscribe to our email newsletter if you want to stay on top of the latest news.

In the meantime, good luck with all of your new year’s resolutions!

By Darius McDermott, managing director, Chelsea

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius's views are his own and do not constitute financial advice.

N.B. This blog was originally published on Chelsea in January 2016 and edited for republication in December 2017.

*Source: FE Analytics, total returns in sterling, 1st January 2017 to 15th December 2017.

Published on 21/12/2017