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Six New Year’s resolutions for DIY investors

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Investment experts share their advice for getting your portfolio in tip-top shape for 2017.

Consider equity income funds

Danny Cox, head of advice at Hargreaves Lansdown, says: 

Inflation is rising and interest rates are at rock bottom, reducing the spending power of your cash. If you are lucky enough to have NS&I index linked certificates roll them over at maturity. Guaranteed inflation busting income investments of this type are as rare as hen’s teeth.

Review the amount of cash you have. It is important to have an emergency fund in cash, plus any other short term spending you have planned. For those happy with stock market risk, invest the balance in the markets for a longer term view and the potential for higher returns. Equity income funds are yielding around 3.5%, substantially above cash returns and there is the prospect for growth over the longer term as well.

Think about selling falling shares

Neil Jones, investment manager at Hargreave Hale, says:

The New Year is an excellent time for some personal housekeeping and this includes your investments.  Where you have been holding on to a share which keeps falling, it may be worth selling and moving on, then you can use the monies raised to ensure your portfolio remains balanced, with a good spread of investments.  Don’t have too much in just one sector, which is common with self-investing, as inevitably you gravitate towards your favourite areas.  However, this will make your portfolio more volatile, so it is important to ensure it is properly diversified.


Use up all this tax year’s allowances

Rob Morgan, pensions & investments analyst at Charles Stanley Direct, says: 

Start planning now to ensure you beat the deadline of 5 April to use this tax year’s allowances. ISAs can be used to both invest tax efficiently, and Junior ISAs can be used as additional provision for children. However, the adult ISA allowance is rising to £20,000 next tax year, £4,000 of which can be a Lifetime ISA for those under 40 – worth bearing in mind in your planning.

Don’t forget pensions, which are often more tax efficient for retirement saving. A raft of changes has taken place over the past couple of years, so now is a good time to check the rules and the options, especially if approaching retirement. Beware the lifetime allowance, the maximum you can build up in your pensions without paying extra tax when you take benefits. This has fallen to £1m, potentially affecting many unsuspecting investors.

It’s also worth taking a look at your investments following an eventful year in markets. Portfolios can become out of kilter as asset classes and sectors rise or fall at different rates. It may be a good time to take profits in strong areas and redistribute to those that have fared poorly. Topping up with a little of what has done badly can help keep your portfolio balanced.

Diversify to mitigate risk

Andrew Herberts, head of private investment management (UK) at Thomas Miller Investment, says: 

2017 is likely to be an interesting year.  We will finally see the new President of the United States in action and if he can sway Republican members of the Congress and Senate to support him, there is the potential for some marked changes in policy.  We will also begin to see some progress on the UK’s move to leave the European Union, with at least Article 50 triggered.  It would be culpably stupid of the government to reveal the full extent of its negotiating strategy so we will still experience a measure of uncertainty as to outcome.  I suspect that details will be thrashed out piecemeal and be revealed similarly.  This adds to the Trump factor.  Elections held by our continental cousins may also lead to further challenges to the status quo (think Marine Le Pen in France, Geert Wilders in the Netherlands, not to mention the challenge Angela Merkel will face in Germany).

Outside the politics, the global economy should trundle along reasonably well.  However, the events outlined above (and they are a very small sample) imply that there is risk out there.

The best way to mitigate risk in your portfolio is to through diversification.  Sound diversification of assets and strategy will serve to add resilience to your portfolio so it is important to make sure that you do not have all your eggs in one basket.  The potential is there to be spectacularly right, but equally spectacularly wrong.  Think of investing as a team game.  You need to be able to field a team which blends well together on the park.  Having a few star players will help, but making sure the team performs well is more important.  Think Leicester City in 2015/16 or, (closer to my heart), Nottingham Forest in the late 70s, early 80s.  So, check the line up and make sure your assets will work together to achieve your goals over the long term, and not be over-exposed to shorter term volatility.

Review the asset allocation and geographical spread of your portfolio

Darius McDermott, managing director of Chelsea Financial Services, says: 

Hopping on the scales in the first week of the new year is no-one’s favourite task but the January weigh-in is an opportunity to reassess more than your exercise and diet plan. When was the last time you ran a health check on your portfolio?

As different sectors, asset classes and economies perform differently over the course of a year, the value of your investments can also shift. Some of your investments may have gained weight (value) and others may have gone in the other direction. Our tips to get your portfolio in shape are:

1. When you review your portfolio it’s a good idea to take a step back and re-familiarise yourself with your investment goals. What are they, and have they changed?
2. You may also like to think about your attitude to risk. Is it still the same or has that, too, changed?
3. With points one and two in mind, take a look at the asset allocation and geographical spread of your portfolio. Does it look about right or do you think you need to adjust it? As different sectors, asset classes and economies perform differently over the course of a year, the value of your investments can also shift. Some of your investments may have gained weight (value) and others may have gone in the other direction.
4. Rebalance your portfolio if you think necessary and fill any gaps you have discovered.

Start saving for retirement now

Jeremy Roberts, head of UK retail sales at BlackRock, says: 

“As we go into 2017, as well as making the usual New Year resolutions, why not consider making some financial ones too. It can be as simple as making a plan and thinking about how much money you would like in retirement to putting aside a bit of money every month to save towards your goal. Visualising your retirement and having an idea of how much you think you’ll need is half the battle. Once you have an amount in mind you can then start saving towards it and reviewing where you are against your goal each year. Whilst retirement may seem like a long way off for some people, it’s never too early to start saving, in fact the sooner you start the more years you have to benefit from compound interest. So while we reflect on the past year and look ahead to the New Year, dust off your finances and make sure you are on track to meet your goals.”



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