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Experienced Investor

Six New Year’s resolutions for DIY investors

Paloma Kubiak
Written By:
Paloma Kubiak

Investment experts share their tips to help you get your portfolio in top shape for 2020.

Invest into your ISA monthly and increase monthly contributions

Darius McDermott, managing director of FundCalibre

Rather than investing a lump sum of money here and there, investors could reap greater rewards from putting money into their ISAs little and often. Not only should this smooth volatility (which means it is best-suited for those buying into higher-risk investment), your portfolio should also reap the benefits of pound cost averaging. Essentially, this is when investors automatically buy more shares when prices fall and fewer when prices rise, as the amount paid in each month remains the same while investment costs fluctuate. It also means you are not desperately choosing where to invest just before the tax year ends.

If you already drip feed into your ISA or pension, the new year might be a good time to increase your monthly contributions. It doesn’t have to be by much. It is easy to underestimate the power of compounding and, of course, its effectiveness increases the sooner you start investing. One good way to increase your contribution is to increase your savings alongside any pay-rise you may get; after all, what you haven’t had, you won’t miss.

Check you haven’t outgrown your investments

Laura Suter, personal finance analyst at investment platform AJ Bell

A fund that was right for you when you were 30 and building your pension portfolio might not be right for you now you’re 70 and taking an income from your pension. Or a fund that you picked while saving for a deposit when you were 25 might not be right for you at 45 when you’re saving for retirement.

It’s good to check if your investments still meet your objectives: do you need income or capital growth, has your risk appetite changed, do you need to access the money sooner or not until two years’ time? Focus on these questions and then make sure your investments are right for you now.

Only buy something that fits into your portfolio

Adrian Lowcock, head of personal investing at Willis Owen

Fund ideas and recommendations are not usually bespoke to individual investors. Therefore, it is important to think about how a new fund purchase would fit into your portfolio. Ask yourself how it will affect your risk exposure, liquidity and diversification. Don’t be easily lured by clever marketing material, and instead seek professional opinion on the fund’s ability to meet your individual goals.

Keep it simple and cut costs

James Norton, senior investment planner for Vanguard UK

Nothing can ever be too simple. The more you consolidate your investments, the more insight you’ll have over returns and the more control over costs. As an added bonus, the bigger the headline number, the more motivated you are likely to feel.

Just like investment returns, costs also compound. So keep them as low as possible. Investment costs are not always obvious or comparable. Don’t be put off. Compare the ongoing charge figures (OCFs) that all funds display but remember that there can be additional hidden costs, such as transaction costs and platform fees. They add up and reduce the return to you. Are the funds you invest in delivering what you need, at a level of risk you’re comfortable with? If yes, good. If not, maybe it’s time to consider switching funds or transferring to a different platform. Remember you can’t control markets, but you can control what you pay.

Make sure you’re not taking unnecessary risk

Michael Martin, private client manager at 7IM

When investing one of the first things you should ask yourself is whether you are taking unnecessary risk with your portfolio. You should work out the return you need in order to reach your goals in life, create a plan to reach those goals, then review it regularly.

Some clients tell me they want to invest in a particular fund or asset class because it has the prospect of offering double digit returns. I ask them why. Then what usually happens is after speaking to the client, particularly those at or in retirement, it turns out they really only need 4 or 5% per annum to reach their goals or maintain their lifestyle. Why would you need to take such unnecessary risk?

Only take the risk you need to reach your goals, rather than simply chasing returns and taking more risk than necessary. Only invest for what you need and chances are you will meet your goals more comfortably.

Review your portfolio

Myron Jobson, personal finance campaigner at interactive investor

It is tradition at this time of the year to take stock and set resolutions for the year ahead. Why not make tidying up your investment one of them? It might seem counter intuitive, but a good clean once or twice a year, selling some of the funds and stocks that have done well and buying some that haven’t, can rejuvenate your portfolio.

In addition, knowing when to cut your losses isn’t easy, but you should also think about selling perennial underperformers. A traffic light system can be helpful, if you want to put your investments through a spreadsheet – green for when things are going well; amber if an investment is stuttering, and red for when an investment has run out of time.