As a new year’s ISA allowance comes closer and closer, it is important to remember to reevaluate your savings every so often to ensure you are making your money work for you.
Asset Allocation is key
Sam Coppin, Director of Advised Investments at Saga Investment Services, explains why asset allocation is so important.
“Once people start to accumulate investments the chances are that these will be of different types. Some will be equities, some bonds, perhaps some property and also some of the more esoteric assets such as commodities (eg gold and oil), and hedge funds.
“This mix is called asset allocation and academic research suggests that it is responsible for 90 percent of the differences in investment returns. So it’s worth putting in some effort to get this right.”
Regular rebalancing
Regularly taking a step back and rebalancing your portfolio is a must to achieve the best strategy.
“Rebalancing means bringing an investment portfolio back to its original asset allocation. It may have become out of kilter because, over time, some investments can grow faster than others. It’s useful to rebalance regularly (annually is about right) and, in effect, it makes people sell equities when they are overvalued and buy them when they are cheap”, Coppin added.
Invest internationally
UK stock exchange listed companies represent around 10 percent of global stock markets, so it simply doesn’t make sense to restrict a choice of investments to the UK market alone.
These days it’s easy to invest internationally – there are thousands of investment funds available covering most of the overseas markets. Diversification of a portfolio is a key method to ensure that no losses in one sector or country have a devastating effect.
Coppin continues: “If people restricted their universe to the UK they would have virtually no exposure to many industries, such as the manufacture of mobile phones, computers, cars, heavy machinery or internet retailers.
“However, they would find that they would be highly exposed to financial services and oil and gas companies, as these represent a large proportion of companies listed on the London Stock Exchange. For UK-based investors we suggest that it still makes sense to have the largest allocation to UK-listed investments, because it is likely their living costs will also be in pounds, and then to complement this with a broad spread of international markets.”