/ REINVESTING /
THINGS CHANGE If the original portfolio was set up a long time ago it is possible that lifestyle changes mean it is no longer suitable , for example if the investor is approaching retirement .
Tom Stevenson , investment director for personal investing at Fidelity International , says if an investor is moving from asset accumulation to taking an income , they should think carefully about the risk level of their portfolio .
“ You don ’ t want to suffer a big fall when you have no time to recover . Equally you don ’ t want to be overconservative ahead of a potentially long retirement in which some growth will be needed to offset inflation ,” he states .
Peter Chadborn , director at Plan Money , says another instance when a strategy rethink may be appropriate is if an investor ’ s goals can be met with a lower level of risk .
“ In other words , one ’ s tolerance may be more adventurous than the risk profile needed to meet the calculated objectives ,” he adds .
THE SAME , BUT DIFFERENT Even if the level of risk needed has stayed constant , it is not necessary to find an exact replica of the investment that was sold . An equity could be replaced by a fund , a fund by an investment trust or an investment trust by an exchangetraded fund ( ETF ).
Lowcock says the decision is down to personal preference , although he warns individual shares are generally riskier than funds because they are not diversified .
“ If you are considering making a move into investment trusts from unit trusts , you also need to make sure you understand the differences in the funds and how they behave – in particular the ability of investment trusts to trade at a discount or premium to net asset value ( NAV ),” he adds .
Rob Morgan , pensions and investments analyst at Charles
Stanley Direct , says an investor could decide to switch from an active to a passive investment , or vice versa . Passive funds tend to be cheaper and more transparent , but active funds have the ability to outperform the market .
Morgan says switching to passive investments may not be the right decision if the fund sold was an equity income one .
Source : FE Analytics the JOHCM UK Equity Income fund , which has a 10-year annualised return of 9 per cent and a 12-month yield of 4.2 per cent .
If the fund was sold because of a lack of conviction in the UK , Stevenson suggests considering a global name . An example is Invesco Perpetual Global Equity Income , which has 35 per cent in the US and 24 per cent in the eurozone .
“ One ’ s tolerance may be more adventurous than the risk profile that is actually needed to meet the calculated objectives ”
“ Investing in all the high-yielding stocks tends to mean you get exposure to ‘ value traps ’ – stocks that look appealing due to their high yield but that are actually in danger of decline ,” he warns . “ Active managers don ’ t necessarily avoid these , but I think it ’ s an area where they can ‘ win by not losing ’.”
For investors looking for an equity income replacement product , Morgan recommends Perpetual Income and Growth run by Mark Barnett , which is on a discount of around 8 per cent . An alternative is
HIGHLY CHARGED Buying and selling investments can be expensive and reduce the value of a portfolio over time . Lowcock recommends minimising trading by taking the time to carefully consider each new purchase .
He also suggests planning transactions wisely . For example , if several equities or funds are being consolidated into one investment , it makes sense to wait until all of the cash has been received so that only one purchase has to be carried out . •
PERFORMANCE OF FUNDS AND TRUST OVER 5YRS
100 % Perpetual Income and Growth Investment
80 %
60 %
40 %
20 %
0 % -20 %
Oct12 Feb13
Jun
Trust ( 64.53 %)
JOHCM UK Equity Income ( 83.01 %)
Oct Feb14
Jun Oct
Invesco Perpetual Global Equity Income ( 97.23 %)
Feb15
Jun Oct Feb16
Jun Oct Feb17
Jun
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