Tailored investment advice

Home » Knowledgebase » Investments » Investment Planning » Tailored investment advice

Knowing yourself, your needs and goals, and your appetite for risk is essential when looking for tailored investment advice.

1. Consider your reasons for investing

It is important to know why you are investing. The first step is to consider your financial situation and your reasons for investing.

For example, you might be:

  • Looking for a way to get higher returns than on your cash savings
  • Putting money aside to help pay for a specific goal such as your children’s or grandchildren’s education or their future wedding
  • Planning for your retirement

Determining your reasons for investing now will help you work out your investment goals and influence how you manage your investments in future.

2. Decide on how long you can invest

If you are investing with a goal in mind, you have probably got a date in mind too. If you have got a few goals, some may be further away in time than others, so you’ll probably have different strategies for your different investments.

Investments rise and fall in value, so it is sensible to use cash savings for your short-term goals and invest for your longer-term goals.

Short term

Most investments need at least a five-year commitment, but there are other options if you don’t want to invest for this long, such as cash savings.

Medium term

If you can commit your money for at least five years, a selection of investments might suit you. Your investments make up your portfolio and could contain a mix of funds investing in shares, bonds and other assets, or a mixture of these.

Long term

Let us say you start investing for your retirement when you are fairly young. You might have 20 or 30 years before you need to start drawing money from your investments. With time on your side, you might consider higher-risk fund exposure that can offer the chance of higher returns in exchange for an increased risk of losing your money.

As you get closer to retirement, you might sell off some of these riskier investments and move to safer options with the aim of protecting your investments and their returns.

How much time you have got to work with will have a big impact on the decisions you make. As a general rule, the longer you hold investments, the better the chance they will outperform cash – but there can never be a guarantee of this.

3. Make an investment plan

Once you are clear on your needs and goals, and you have assessed how much risk you can take, next you need to identify the types of investment options that could be suitable for you.

4. Build a diversified portfolio

Holding a balanced, diversified portfolio with a mix of investments can help protect it from the ups and downs of the market. Different types of investments perform well under different economic conditions. By diversifying your portfolio, you can aim to make these differences in performance work for you.

You can diversify your portfolio in a few different ways through funds that invest across:

  • Different types of investments
  • Different countries and markets
  • Different types of industries and companies

A diversified portfolio is likely to include a wide mix of investment types, markets, and industries. How much you invest in each is called your asset allocation.

5. Make the most of tax allowances

As well as deciding what to invest in, think about how you will hold your investments. Some types of tax-efficient account mean you can normally keep more of the returns you make. It is always worth thinking about whether you’re making the most of your tax allowances too.

You need always to bear in mind that these tax rules can change at any time, and the value of any particular tax treatment to you will depend on your individual circumstances.

6. Review portfolios periodically

Periodically, a financial review will provide the opportunity to check and see if your portfolio/s wide mix of investment types and markets still aligns with your goals.

These are some aspects of your portfolio you may want to check up on annually:

  • Changes to your financial goals – Has something happened in your life that calls for a fundamental change to your financial plan? Maybe a change in circumstances has changed your time horizon or the amount of risk you’re willing to handle. If so, it is important to take a hard look at your portfolio to determine whether it aligns with your revised financial goals.
  • Asset allocation – An important part of investment planning is setting an asset allocation that you feel comfortable with. Although your portfolio may have been in line with your desired asset allocation at the beginning of the year, depending on the performance of your portfolio, your asset allocation may have changed over the period in question. If your actual allocations are outside of your targets, then perhaps it is time to readjust your portfolio to get it back in line with your original targets.
  • Diversification – Along with a portfolio with a proper asset class balance, you will want to ensure that you are properly diversified inside each asset class. Diversification means owning a variety of assets that perform differently over time, but not too much of any one investment or type. There are four main asset classes – cash, fixed-interest securities, equities and property– and having exposure to them all will help reduce the overall level of risk of your investment portfolio. If one part of your portfolio is not doing well, the other investments you have made elsewhere should compensate for any market corrections.
  • Performance – Consider if there are certain aspects of your portfolio that need rebalancing. You may also want to consider selling to help offset capital gains you might make throughout the year. The primary goal of a rebalancing strategy is to minimise risk relative to a target asset allocation, rather than to maximise returns. Over time, asset classes produce different returns that can change the portfolio’s asset allocation. To recapture the portfolio’s original risk-and-return characteristics, the portfolio should therefore be rebalanced.