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Investing essentials – housekeeping after lockdown

Here are our top tips to help keep on top of your investments as UK lockdowns ease.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Life during the pandemic has been unlike anything most of us have ever experienced in our lifetime.

I’m sure for a lot of us we’ve taken up activities like cycling, running or home workouts to reclaim our mental sanity and keep the lockdown pounds at bay.

Just like a bit of exercise to stay active and on top of things, consistency is just as key when it comes to keeping a healthy investment portfolio.

As we emerge from lockdown with normality seeming to be getting ever closer, here are a few ways to keep on top of your investments.

This article isn’t personal advice. If you’re not sure if a course of action is right for you, then ask for financial advice.

A financial spring clean

Over the past year we’ve had more time on our hands to fix up our homes, binge the latest Netflix show and go for a walk or two. It’s also meant there’s never been a better time to spring clean our finances.

Since the first restrictions back in March last year, it’s estimated more than £160 billion worth of lockdown savings have been built up in UK households.

Some of us have used this time and spare cash and found a hobby in investing. More than a fifth of UK adults have seen an increase in being able to save and invest because of the different restrictions put in place.

We shouldn’t forget, this hasn’t been the case for everyone though.

All in all, our financial situation is probably looking a little different to how it did a year ago.

As the UK opens back up again, lots of us are likely to go on a post-lockdown spending spree and do our bit to kick-start the economy. But we should still be keeping on top of our finances.

Save smaller, but regularly

If you’ve used some of those built up savings to start investing throughout lockdown, you can continue to do so in a manageable way.

Think about investing on a monthly basis in smaller chunks. Sure, investing in one lump sum means you could maximise your returns in one go, but it can be riskier too. If the past year has taught us anything, it’s that we don’t know what’s around the corner.

Investing a little bit at a time means you’re not paying out a large sum. It also means you’ve got a better chance of riding out the ups and downs of the market

We all know stock markets move up and down. Drip-feeding into the market in smaller amounts over time could mean the average price you pay for your investments ends up being lower than investing it all at once.

This means your investment buys more units or shares when the price goes down, letting you smooth out the returns from investing in the stock market. But you’ll need to remember, if the market rises above the original price you paid, fewer units are purchased.

Remember, all investments can rise and fall in value, so you could get back less than you invest.

Let time do the hard work for you

Not only does regularly investing mean you may have spare cash to do other things as lockdown eases, it also means you could benefit from something called compounding.

The longer you invest, the more chance you have for growth on your investments to keep growing too. And reinvesting dividends can supercharge this.

Albert Einstein once noted the most powerful force in the universe was the principle of compounding, and we agree. It’s all about thinking long term when you invest. So rather than taking smaller income payments or profits if they’re not needed, consider reinvesting them. It could be worth it in the long run.

FTSE All-Share – the impact of reinvesting dividends

Past performance isn’t a guide to future returns. Source Lipper, to 28/04/21

You can see from the above what a difference reinvesting income has made over the long term. Remember though, dividends can vary, aren’t guaranteed, and are not a reliable indicator of future income.

Make sure you’re diversified

Diversification is an essential tool to help manage the unexpected.

Stock markets are unpredictable – it’s impossible to make the right decisions all the time. Some investments won’t perform as you expect.

As the legendary fund manager, Peter Lynch, has said “It would be very useful to know what the market is going to do. But unfortunately, no one has been able to predict them”.

We use diversification to help smooth out the ups and downs a portfolio could go through if you hold just one, or a few, investments.

Whether it’s types of companies, types of investments – like shares, bonds, and property – different parts of the world, or investment styles. There are lots of ways you can do it.

Picking individual companies isn’t always the answer, or the easiest way, to start diversifying.

Instead of putting all your eggs in one basket, you should spread your money over lots of different investments. This means if one performs poorly, the others will hopefully pick up the slack and help deliver the returns to help you reach your goals.

Diversification – the investor’s tool we all need to talk about

An easy way to help diversify your investments is to think about investing in funds. A fund is a collection of investments chosen and run by a fund manager – by choosing a good mix of different funds, you can let the professionals spread your money for you. Investors should look for funds that match their risk profile.

Remember, investing in funds isn’t right for everyone.

Rebalance your investments

Portfolios change constantly. Market conditions, company performance and investor sentiment will all play a part in how your portfolio changes over time.

The amount you allocated to different investments will have changed, as well as how risky your portfolio could be. Leaving your portfolio unchecked for too long is a lot like ignoring the check engine light in your car – you’re leaving the outcome to chance. If you want your portfolio to help reach your goals, you’ll need to make sure it’s serviced regularly.

Investment risk – how risky is your portfolio?

Just like taking your car to a mechanic, the process of rebalancing your investments is an essential tool for maintaining the long-term health of your portfolio.

How does rebalancing work?

Rebalancing works in two ways – you can add new money to your account to top up any investments that haven’t done so well. Another way is to sell a portion from your investments that have done well, to top up investments that haven’t. This forces you to sell high and buy low too.

It might sound counterproductive, but top performers can come in waves. Remember past performance isn’t a guide to the future, and just because something’s done well in the past doesn’t mean it will carry on doing so.

How often you decide to rebalance is up to you, but don’t overdo it – we think once a year is about right. Rebalancing can create costs like dealing charges or taxes. Make sure you’re rebalancing to stay on track and stay diversified, but not so much that the cost of doing so is eating into your returns.

Tips for keeping on top

  • Invest on a regular basis
  • Make sure your portfolio is diversified
  • Think long term – that’s at least five years
  • Rebalance your investments to manage risk

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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