Get Your Investment Portfolio in Shape for the New Year

Could bad financial habits be costing you money? Here are six simple steps to help get your investment portfolio on track

Holly Black 28 December, 2018 | 12:31PM
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If you’re still deciding what your New Year’s resolution will be for 2019, how about vowing to get your investment portfolio back on track? Research by Boring Money reveals that investors could be missing out on gains of up to 11.3% a year by falling into bad financial habits. 

Claire Walsh, personal finance director at Schroders, says: "Many people go on diets or exercise regimes in January and typically people start with lots of enthusiasm but then they quickly give up. Shaping up your finances is a similar challenge - it is about making this a habit and continuing throughout the year.”

Switching your bank, finding a better mortgage deal and making use of your ISA allowance are all great first steps to take to get your finances on track in the new year. But investors should also take this opportunity to get their portfolio ready for the year ahead. 

Here are six simple steps to help get your investment portfolio on track: 

Make Use of Tax-Free Allowances

Don’t give away a chunk of your investment returns to the taxman unnecessarily. Make use of your annual Isa allowance of £20,000, which lets you enjoy any gains tax free. It’s also worth topping up your pension contributions if you are able to, particularly if your company will match the amount. The annual pension allowance is £40,000. 

Those who are cashing in gains through an investment account can pocket profits of up to £11,700 a year tax-free under the annual capital gains allowance, and can offset losses against their gains. 

Be Diversified 

Many investors unintentionally have a so-called “home bias” whereby the biggest proportion of their portfolio is in their local stock market. This is typically because it is the easiest to access and contains the companies they know and understand. But not spreading your investments across different regions and assets, leaves you vulnerable if there is a market correction or shift in sentiment. 

Rick Eling, investment director at Quilter, says: “People tend to stick to what they know, buying a small number of UK shares from brand name companies, for example. They often assume that a big, solid brand is a sign of a safe, solid investment, but that’s a dangerous assumption - look at names such as Marconi and Carillion.” 

Check Your Holdings

While investing for the long-term is a great strategy, you should still check up on your funds on a regular basis. Check whether the fund manager is performing as expected and how they are faring compared to their peers. Also consider whether the funds you hold are still appropriate - you might have backed a racy emerging markets fund years ago, which may not be suitable if you are now approaching retirement for example. 

Laura Suter, personal finance analyst at AJ Bell, says: “Be careful you’ve not got the portfolio of a 30-year-old if you’re now aged 60. Consider what you are aiming for and how far away that goal is, and be sure the risk in your portfolio matches your risk appetite.”

Rebalance - But Not Too Often

Rebalancing means making sure you’re not inadvertently over- or under-exposed to one particular area. If you started with a selection of funds equally weighted in your portfolio, over time those weightings may distort as some funds soar and others lag. This could leave you vulnerable if those front runners then start to fall. 

Experts suggest rebalancing once or twice a year – that means pocketing profits from the strongest holdings and adding more to weaker ones, which may feel counterintuitive but is a sound strategy over the long term. Don’t tinker too often though, or trading charges will start to eat into your returns. 

Investing little and often has a number of benefits – not least that you don't have to remember to invest each month. It also let you enjoy pound cost averaging, where the average price you pay for shares or fund units is lower over time because you buyer fewer when they are expensive and more when they are cheap. 

Regular investing also means you don’t try and time the market and risk buying at the top or panicking and selling at the bottom. Most fund supermarkets will let you set up a regular investment plan with as little as £25 a month. 

Check You’re in the Cheapest Share Class

The sheer number of funds there are to choose from can be utterly baffling, and even when you whittle your selection down there are still a host of different share classes to decipher for a single fund. Each class gives you access to the same fund and the same manager, but choose the wrong one and you could be shelling out a fortune in unnecessary charges. If you have held a fund for years, it is likely you are paying high charges. 

Fund groups have started to introduce so-called clean share classes in recent years, which have lower fees and don’t pay commissions to platforms or advisers. The other point to bear in mind is whether you choose accumulation units – which roll-up and reinvest any dividends to boost your returns – or income units,a which pay out income. Your fund supermarket should be able to advise which share class is the cheapest.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor,