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Tailoring a portfolio

Investment lessons from everyday fashion.

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.

Punk rock or glam rock? Suit smart or lockdown casual?

Fashion trends come and go. Some even make it full circle – if you hold on to your clothes for long enough, they just might make a return to being cool.

There’s probably some evidence of changing trends in your own wardrobe. You might find the longer it’s stood in your bedroom, the more unique it’s become to you. Does anyone else in the world hold the exact same combination of outfits?

Investment portfolios can be similar. Constructed over a number of years, you might find your portfolio looks entirely different now to when you first started investing. What looked good in the 80s might not hold the same appeal in 2021.

The longer you invest, the more you tend to learn. And as you grow older, your investment approach or attitude to risk can change. So while investing is for the long term, it’s normal that your portfolio might change or develop over the years.

Whether you’re a dedicated follower of fashion or not, we think there are some useful lessons here.

The core-satellite approach

You might have heard of this approach to constructing an investment portfolio. We think it’s a great strategy for new and experienced investors.

It involves holding a main core of investments, surrounded by smaller satellites. The idea is to help you achieve greater returns with a relatively lower level of risk, thanks to diversification. Holding a well-thought-out portfolio that includes different types of investments reduces the impact of any one area performing poorly.

You might think of your core holdings – perhaps some well-diversified funds – as a bit like the most-worn items in your wardrobe. Most people think of a reliable winter coat as a must-have.

Other items are optional and what looks good will depend on things like your age, fashion sense or profession. These are your satellites, and you should think about whether the number you hold is right for your investment goals.

Investments involve more risk than even the most out-there pieces of clothing. They fall as well as rise in value, so you could get back less than you put in.

Prepare for all seasons

Any British person knows the good weather never lasts forever.

When everything is going well in the markets, investing can seem easy. But we should always remember that stormy weather, or more market ups and downs, could be just around the corner.

That’s why it’s best to prepare a diversified portfolio, that isn’t too heavily reliant on one sector, region or investment style. Your new sandals might look great on the beach, but they won’t be much help in the winter mud.

Check your portfolio has the right balance of investments for the long term, so you don’t get caught out by a turn in the weather.

Don’t get sentimental

We’ve all got that one item of clothing we can’t bring ourselves to throw away. Maybe it was a gift, or holds good memories.

It’s fine to grow attached to old clothes. But with investing, we should try our best not to get sentimental, or let our emotions guide decision-making.

If your circumstances change, you shouldn’t be afraid of adjusting your portfolio to match. Try not to hold on to investments purely because you’ve grown attached to them, or get swept away purchasing investments in the euphoria of new trends.

Whether you’re looking for income, growth, or both, you should try to keep a clear focus on what your investment portfolio is for and make your decisions accordingly.

Find out more about investing behaviours

Spring is here

The new tax year started on 6 April.

With new allowances available for tax-efficient investment accounts like Stocks and Shares ISAs, it’s a time of year when many investors might be thinking about adding money to their portfolios.

Switch your money on this tax year

If you already hold a portfolio, it might also be a good time to review your investments. Like any good wardrobe, we suggest doing this at least once a year. Here are six pointers to help:

  1. Check whether your reason for investing, your circumstances, or your objectives have changed.
  2. Consider whether your attitude to risk has changed.
  3. Assess the performance of your investments (and try to understand the reasons for any difference in performance).
  4. Check the relative costs of your investments.
  5. Check whether you need to rebalance your portfolio so its overall shape stays aligned with your objectives over time.
  6. Check if tax rules or allowances have changed.

This isn’t personal advice. If you’re not sure what’s right for you, please ask for financial advice. Tax rules can change, and benefits depend on individual circumstances.

READ MORE

Explore our Investment Times spring 2021 edition for more articles like this.

See all articles

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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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