Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Q: My ISA portfolio has developed into a ragbag of all sorts. How do I start to work out whether I have the right funds?
The good thing about a portfolio - whether it’s for your Stocks and Shares ISA or a Self-Invested Personal Pension (SIPP) - is that they’re flexible. In only a few working days it’s possible to buy, sell and switch the investments you hold.
Of course, I’m not suggesting you chop and change whenever a bright new shiny ‘thing’ comes along. Investing is for the long term - at least five years. But equally we’re all human. And if an opportunity presents itself, it’s only natural you want to take advantage it.
Over the years, however, it can result in exactly the situation you find yourself in. Don’t worry, here’s my checklist of questions you should ask yourself if you’re wondering if your ISA (or SIPP for that matter) portfolio is feeling as though it’s got a little out of control.
Ask yourself:
- What’s your investment objective for this portfolio? Growth or income?
- What are your goals? What is this money to be used for (property purchase, a child’s wedding, retirement plans)?
- What’s the time horizon? When do you think you’ll be drawing on this?
- What other savings and investments do you have outside of this portfolio? Do you have portfolios of different risk elsewhere?
- What’s your risk tolerance on a scale of 1-5? To help you put this in context, I’d generally say that at the lower end ‘1’ aims to marginally beat inflation (of course with the sustained periods of high inflation rates that we’ve seen this has been a tall order). Whereas ‘5’ is at the top end, where you are comfortable that you understand that markets ride in cycles and you’re happy to ride out 30-40% drops.
- How do you feel when there are big drops in the market?
- How confident are you when it comes to investing, and how did you put your current portfolio together?
How to look under the bonnet of your portfolio
If you want to understand on a deeper level what you’re invested in, you can put your portfolio under a microscope. Here’s how.
First, log in at fidelity.co.uk. Then select the account that you’d like to review and pick a Benchmark to compare it against (I wouldn’t worry too much about this, you just need a comparison. If in doubt, I’d go for the MSCI World PR USD - but you can learn more about the individual benchmarks when you select one from the list).
This will pull up on an online analysis. To access and download the full X-ray report, click on ‘Export’.
There’s a lot of information in this report, but here’s what I’d focus on.
- Asset allocation - this will show you what the proportion is of each asset class that you hold.
- Country exposure - it gives you a breakdown of where in the world you’re invested.
- Stock sectors - percentage breakdown of the types of sector you’re invested in - such as cyclical (which means sectors which are affected by the economy) or defensive (less volatility) - as well as the industries you’re invested in for example real estate, technology, healthcare, energy and so on.
- Return analysis - in an ideal world investing would give you high returns for low risk, but that’s not realistic. The X-ray report analyses the volatility of your portfolio versus return. So, on the horizontal axis you have the volatility and the further to the right it is, the riskier it is. On the vertical access you’ve got the return. So, the higher it is, the higher the return and the lower it is, the lower your returns are.
- Top 10 underlying holdings - which shows your largest holdings.
- Holdings overlap - this is particularly interesting. You might think because the funds you’ve chosen are different, you’re well diversified. However, on closer inspection you might see there’s duplication. It’s not always a bad thing, but it is good to have a transparent view.
About Bhavi Alagaratnam - Senior Wealth Relationship Manager
Bhavi has been with Fidelity for ten years and has undertaken various roles within this time. Bhavi is currently a senior relationship manager within the Fidelity Wealth Management service, supporting our ultra-high net worth clients in achieving their investment goals. Clients who invest over £250k, including within pensions, are assigned a relationship manager who will work alongside them on their investment journeys to achieve their financial ambitions. Relationship managers support their clients through guidance and portfolio reviews, they also work closely with Fidelity Wealth Management financial advisers so their clients can get the right support exactly when they need it.
Got a burning question you want to ask? Why not drop us a line. Click here to ask an expert your question.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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