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A NEW YEAR BEGINS: TIME TO
REVIEW YOUR NEEDS AND GOALS?
by Sam Hulson of First Equitable
The start of a new year provides an opportunity to think about what you
really want from your investments.
Anything is possible when you manage your money the right way. It’s well worth
taking the time to think about what you really want from your investments.
Knowing yourself, your needs and goals, and your appetite for risk is a good
start. Your focus should be on ensuring that the inevitable bumps along your
investment journey do not force you off course.
When markets are falling and it seems like everybody is selling, staying invested
can seem daunting and dangerous. Equally, when markets are rising and
everybody seems to be buying, keeping a level head and ignoring the crowd can
be difficult.
CONSIDER YOUR REASONS FOR INVESTING
It’s important to know why you’re investing. The first step is to consider your
financial situation and your reasons for investing. Determining your reasons for
investing now will help you work out your investment goals and influence how
you manage your investments in future.
DECIDE ON HOW LONG YOU CAN INVEST
If you’ve got a few goals, some may be further away in time than others, so you
may need different strategies for your different investments. Investments rise
and fall in value, so it’s sensible to use cash savings for your short-term goals
and invest for your longer-term goals.
SHORT TERM
Most investments need at least a five-year commitment. But there are other
options if you don’t want to invest for this long, such as cash savings.
MEDIUM TERM
If you can commit your money for at least five years, a selection of investments
might suit you. Your investments make up your ‘portfolio’ and could contain a
mix of funds investing in shares, bonds and other assets, or a mixture of these.
LONG TERM
If you have time on your side, you might consider riskier funds that can
offer the chance of bigger returns in exchange for an increased risk of losing
your money. As you get closer to retirement, you might sell off some of these
riskier investments and move to safer options, with the aim of protecting your
investments and their returns. How much time you’ve got to work with will have
a big impact on the decisions you make. As a general rule, the longer you hold
investments, the better the chance they’ll outperform cash – but there can never
be a guarantee of this.
MAKE AN INVESTMENT PLAN
Once you’re clear on your needs and goals – and have assessed how much risk
you can take – you need to identify the types of product that could be suitable
for you.
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BUILD A DIVERSIFIED PORTFOLIO
Holding a balanced, diversified portfolio with a mix of investments can help
protect it from the ups and downs of the market. Different types of investments
perform well under different economic conditions. By diversifying your
portfolio, you can aim to make these differences in performance work for you.
A diversified portfolio is likely to include a wide mix of investment types,
markets and industries. How much you invest in each is called your ‘asset
allocation’.
MAKE THE MOST OF TAX ALLOWANCES
As well as deciding what to invest in, think about how you’ll hold your
investments. Some types of tax- efficient accounts mean you can normally keep
more of the returns you make. It’s always worth thinking about whether you’re
making the most of your tax allowances too.
REVIEW YOUR PORTFOLIO PERIODICALLY
Periodically checking to see if your portfolio aligns with your goals is an
important aspect of investing. These are some aspects of your portfolio you may
want to check up on annually:
CHANGES TO YOUR FINANCIAL GOALS
Has something happened in your life that calls for a fundamental change to
your financial plan? Maybe a change in circumstances has changed your time
horizon or the amount of risk you’re willing to handle. If so, it’s important to
take a hard look at your portfolio to determine whether it aligns with your
revised financial goals.
ASSET ALLOCATION
An important part of investment planning is setting an asset allocation that you
feel comfortable with. Although your portfolio may have been in line with your
desired asset allocation at the outset, depending on the performance of your
portfolio, your asset allocation may have changed over the period in question.
If your actual allocations are outside of your targets, then perhaps it’s time to
readjust your portfolio to get it back in line with your original targets.
DIVERSIFICATION
Along with a portfolio with a proper asset class balance, you will want to ensure
that you’re properly diversified inside each asset class.
PERFORMANCE
Consider if there are certain aspects of your portfolio that need rebalancing.
You may also want to consider selling to help offset capital gains you might take
throughout the year.
If you would like help creating a financial plan, or a perhaps a review of an
existing one; please contact us on 0151 236 9973 and we would be happy to
provide you with our assistance.