Give your portfolio a healthcheck: A four-step annual MOT for your investments

Banking Article 1920X1080 Jul 22
Published: 07 Mar 2022 Updated: 08 Mar 2022

Towards the end of the tax year is as good a time as any to take stock of your investments. It’s easy for time-poor investors to fall into an ad hoc approach, adding funds that are being tipped by in the run up to the April deadline, without considering how they might fit alongside existing investments.

That is likely to create an unbalanced portfolio, potentially compromising longer-term returns. Jason Hollands, managing director at investing platform Bestinvest says an annual healthcheck is a good habit for all investors to get into.

‘It’s much more exciting to buy new things than review and top-up what you already have,’ he says. ‘And this is a classic trap that private investors fall into: following investment trend narratives, buying the latest hot story and ending up with a real curate’s egg of yesterday’s investment ideas.’

Without more discipline and overview, investors can lose track of the objectives they are investing for, how best to get there, and whether their current savings are doing the job.

‘Investors shouldn’t go the other way and meddle with their portfolio too much. Well researched choices don’t suddenly become bad ones after six months of unspectacular performance,’ adds Hollands.

‘But there’s nothing wrong with an annual spring clean to rebalance how your portfolio is spread across different asset classes and markets, and to review your individual holdings and potentially rooting out the worst performers – particularly now that fund buying and selling on most DIY platforms is free and sharing trading costs are low.

'Many investors will be looking to use up more of their ISA allowance before it expires with the tax-year end – and that is certainly sound thinking. However, before investing any new monies, it is wise to take stock of what you already hold as this will help point you in the right direction.

‘With just a few weeks left, some may be concerned that they are too pressed for time to do this. But you can secure your allowance by initially funding your ISA with cash: you don’t have to buy any investments before the tax-year end. So investors who are unsure of where to invest or who are understandably nervous at the moment can bide their time. Whether you want to add to your holdings now or not, give your current investments a thorough inspection first.’

Bestinvest’s Hollands has put together a four-step plan for reviewing your investment portfolio.

  1. Remind yourself of your goals

Some savers have specific objectives that they are investing towards, for instance to pay their children’s school fees or university costs, or to add to their retirement fund.

Others have less specific aims but will still have something in mind like ‘to grow my savings as much as possible’, which is a goal in itself. But it’s best to set a time horizon, like ‘by 15 years’ time’, and to have an idea of the annual returns you want to make over that period.

As these criteria are both important for making decisions over risk and asset allocation, which we will come to.

Such calculations will also change the closer to that horizon you get, or you might push the horizon back due to a change in circumstances. But the important thing is to have at least an estimated timeframe so you can set your investment strategy accordingly.

Understandably some savers lack the confidence or the time to make such decisions. On the Bestinvest platform, investors can access an Investing for Your Goals advice package, in which a qualified investment adviser will recommend an asset allocation if you wish to make their own fund selections, or a suitable ready-made portfolio. The fully regulated advice package comes at a fixed cost of £295 (inclusive of VAT). [1]

  1. Give your portfolio an X-Ray

The most important component of a long-term investment strategy is how you choose to spread your investment across different types of investments such as shares, bonds, property, commodities and cash, as well different regions and sectors. This is known as asset allocation and even a well-planned approach will drift over time

Based on your objectives and attitude to risk you will have made a judgment on what proportion of your portfolio you wanted to commit to higher risk assets like equities, as opposed to lower-risk ones like bonds, and to diversification assets like gold, property or unquoted companies.

Strong currents in global markets mean these proportions are likely to morph significantly over time. During the great growth stock boom that has just recently fizzled out, many small investors’ portfolios became very overweight in not just equity funds but a certain style of equity fund – high growth, often with a big commitment to the US and tech stocks.

Meanwhile over the last three years or so, poorly-yielding government bonds have become a less attractive ‘defensive’ option to counter-balance equities. Is your bond allocation losing you money and if so what other stable and / or diversifying assets can you look to instead?

So, one, check you are happy with your latest asset percentages, and within your equity allocation that you are not overcommitted to certain regions or styles.

Two, have you got too many funds? Many investors accumulate high numbers of funds because of the temptation to buy the latest success story or exciting narrative each year. There is no magic number but owning more than 20 funds and investment trusts can make it harder to keep an eye on how they are all doing.

‘Every holding should fight for its place in your portfolio,’ says Hollands. ‘Have a dozen funds that you really like rather than 30 you can’t keep track of.’

Three, is there overlap? When you have a lot of funds there could be significant duplication which means you are holding the same sorts of investments across two or more vehicles. Overlap as well as performance can help you to decide which funds to sell.

Alternatively you could get a professional to do the work for you, as there are increasingly affordable advice options out there. The Bestinvest platform offers a Portfolio Health Check, a fully regulated advice package, in which an investment adviser examines your investments and makes recommendations. It comes at a fixed one-off price of £495 (inclusive of VAT). [1]

  1. Give your investment strategy a performance-related review

Simply put: are your investments doing the job you want them to? Answering this requires analysing both the recent and long-term performance of your investments, at both a portfolio and fund level.

At the top level you will have the growth (or otherwise) of your portfolio, which might have exceeded or disappointed your expectations. If the latter, do you need to take more risk in search of higher growth?

Or is it down to some poor investment choices? This is where fund performance comes in and you should be ruthless in assessing this. One year’s disappointing returns don’t necessarily make a bad fund – but you might explore the reasons for it. Could it be that the overall market is down or that an investment style is temporarily out of favour, or has something else gone on like a change of fund manager?

When assessing fund performance, it is important to look at how a fund has done compared to the market it invests in. Even the very best managers are unlikely to make gains when the overall market tumbles. The same is true on the flipside: don’t assume a fund manager has done a gone job just because the value has risen, as this may be down to strong rises in markets rather than the decisions they have made.

Over three and five years, are your funds beating the market or lagging it? If you are just going for growth are total returns, from both capital gains and income, on track?

Your attitude to income is an important element of strategy. Do you want high-yielding investments either to take an income from or to reinvest for higher growth? If so are those investments doing their job? Even if they are producing income, is their poor capital gains dragging down overall performance?

Likewise, if you are taking an income from overall returns, are you taking too much and winding down your portfolio?

  1. Decide how you want your portfolio to look and ring the changes

After these steps you will be getting a better idea of what if anything is wrong, and how you want to rebalance your portfolio. But also the world can change significantly in a year – as for instance it has recently with the emergence of inflation that looks set to remain high for quite a while.

Such domestic and global economic trends will favour some investments more than others and therefore determine how you want to adjust your holdings.

Decide what sort of funds best suit the purpose you have in mind. You might conclude for instance that a passive fund does a decent job of tracking the US market or physical gold, while an investment trust might be a good format to get exposure to illiquid assets such as infrastructure projects or unquoted companies. A managed open-ended fund meanwhile might be good for targeting UK equity income.

Then it’s the fun bit: researching and choosing a new fund or two to replace those you are selling. All the usual due diligence applies:

  • recent and long-term performance matters but don’t give very short-term performance too much weight
  • drill down and make sure it does what its name suggests: underlying holdings might not always be what you expect
  • check the fund manager’s personal record, especially if he has just come on board
  • check the fund is not too bloated in size. In some cases, if a fund gets too large, this might mean it can no longer be managed with the same approach that has served it well in the past
  • if it is an investment trust, don’t pay too much of a premium

‘You can also consult the Best Funds list on the Bestinvest website to narrow down what can sometimes be a bewildering array of fund choice,’ says Hollands. ‘The funds on the list are those favoured by our investment research teams and the list is updated on a regular basis – whether that is because a fund has changed in some way (e.g., lost its top-performing manager), or whether a change in market conditions has dented the attractiveness of a fund’s approach.’

Hollands concludes: ‘In all these assessments and calculations around one’s investments it can often help to clarify things by talking to someone. Bestinvest offers free person-to-person coaching which can be booked easily online. This enables you to talk through investing best-practice and the options on the market, so you can arm yourself with more knowledge and be confident you are reaching decisions in the right way.’


[1] These are fully regulated financial advice packages. A Portfolio Health Check – in which an investment adviser examines your investments and makes recommendations – comes at a fixed price of £495 (inclusive of VAT). Meanwhile, the Investing for Your Goals option will recommend a suitable ready-made portfolio, or an asset allocation if the client wishes to make their own fund selections, at a fixed cost of just £295 (inclusive of VAT). Following the purchase of either of these advice packages there will be no commitment to further purchases or to an ongoing advice relationship.


This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.