Should you Tweak your Portfolio?

It's tempting to tweak your portfolio at times of uncertainty. We asked financial advisers what they're telling their clients to do

Annalisa Esposito 23 November, 2020 | 1:30PM
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Ideas

The temptation to tweak your portfolio might have been stronger than usual lately. Perhaps you wanted to shield your pot from the coronavirus crisis, or from the uncertainty over Brexit, or even to predict the US election results and its future possible impact on markets.

But Ivor Harper, director at Park Financial, says you might just get upset if you check your portfolio too often. “I encourage my clients not to look at their portfolio every week. I look at mine once per year and that’s more than enough,” he says. “Those who look every week are destined for a life of anxiety and misery.”

Indeed, it’s a hard-wired behaviour in human beings that we feel the pain of loss much more intensely that we enjoy a gain. “If you go out on a night out and you find £10 pounds, you’ll feel good. But if you lost it, you’ll feel a lot worse. That’s how people react to bad news,” says Harper.

Should I do Something?

The main question many people have been asking themselves this year is: “Shall I do something?”. This is also the question that some of Harper’s clients asked him when the first lockdown occurred back in March. “Some of my clients were in a bit of a panic, but it was a small number. I didn’t have too many corona-inspired calls,” he says.

Indeed, just a handful of his clients called wanting to take action and add some defensive measures into their portfolio, while most just wanted to be reassured they could “carry on and relax, because everything is under control". He adds that those wanted to take action were relatively new clients and “they have yet to be indoctrinated to the fact that crises come and go”.

However, funnily enough, most of his clients were quite sanguine, telling him they hadn’t looked at their portfolio since they expected it to go down, and preferred to wait for the recovery. “That’s what all investors should be doing,” says Harper.

Peter Chadborn, director at Plan Money, had a similar experience, with only a few clients wanted to change their allocation at the height of the pandemic or since. “I haven’t had too many people panicking, and if they did I reassured them not to have knee reactions and to accept periods of volatility – they are just part of the journey.”

Sit Back and Enjoy the Ride

Investing is usually a long-term journey to get to an ultimate goal (usually retirement). As long as your portfolio has been set up correctly in the first place, says Chadborn, it should be built to cope with stresses and strains and will even out eventually. “Don’t time the market, keep your portfolio diversified and your risk profile aligned with your risk tolerance – and everything will be alright," he says. 

The truth is, we are in a storm and storms at some point pass. Markets go up and down, that’s what they do every few years, they collapse. “Rest assured that between now and the time you retire, there will be other meteoric collapsse in your fund’s value too. But as long as you're not planning to retire in a few weeks' time, don’t worry about it,” says Harper.

Chadborn agrees: “When there is an election or a major event the market will always react, but we have no idea of how it will react. The worst thing you can do is try to second guess the market.”

But, he concedes, a market shock could be a good time to take a look at your portfolio and see if it is diversified enough to withstand a storm. Does it need rebalancing? Are you too exposed to certain regions or sectors? One common strategy is to use a core and satellite approach to your portfolio, using a global fund such as the Gold-Rated Fundsmith Equity as the core to your portfolio and adding smaller, more specific exposure around the edges. 

 

 

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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About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk