Give your investments a New Year review

After all the excitement of Christmas, the New Year can be a time for quiet reflection – not least to ensure that your finances are in good shape after the demands made on them by the festive season.

After the cold-turkey meals, time to reflect

Nobody begrudges spending money on family and friends at this time of year, but it is important also to consider our own long-term future; so thinking about how your investments are structured now is a good idea.

The first consideration is, of course, whether you are saving enough overall to ensure a secure future. But this cannot be achieved in isolation from a review of your personal lifetime goals, as how will you know what is ‘enough’? So this needs to be put into the context of an overall plan.

Overview
The first issue to consider is whether you have adequate money to provide for short-term needs – including the unexpected. Ideally this should be placed so that it is easily accessible without penalty and does not include the higher charges associated with more long-term investments, where management expertise is required. This having been said, it is important to ensure that there are no ‘hidden’ charges; banks have a wide difference between the rate they pay their customers in interest and what they charge borrowers.

Looking towards the longer term, to cover such things as special holidays, wedding costs school fees and, of course, retirement, involves additional considerations, such as the need to balance potential risk with possible reward and the tax efficiency of different classes of investment (see Balance, below).

Balance
The importance of adopting a diverse asset allocation strategy within investments cannot be overemphasised because this gives you the opportunity to ‘spread your risk’. Of course, you miss out on the upside potential of having picked the best performing asset class, but it also protects you from only having picked the worst!

Balance is essential

One of the most important things to remember with investments is that the variations directly resulting from the different performance of each asset class will automatically result in the balance of investments changing.

For example, if US shares rise by (say) 15% and Far East shares fall by (say) 10% over the year, then the proportion of shares held in the US will naturally increase, at the expense of those in the Far East. While you could argue that this is good, there is always a chance that the performance will reverse in future and then holding a higher than intended proportion of American shares could reduce the overall performance of the portfolio.

This makes it important to consult your financial adviser in order to review the balance of your investment portfolio at least once a year. For many people this consideration comes before thoughts of tax efficiency.

Enough?
It is also worth considering that plans put in place a year or more ago may no longer be adequate. If your family responsibilities have changed during the year – perhaps you have become a new parent or grandparent – you may need to be putting more aside in order to allow for additional future costs.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact us.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND. 

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