Five steps to review your investment portfolio

It’s nearly time to welcome 2024 – and the perfect opportunity to review your investment portfolio to ensure it still meets your needs. Here is our guide to revisiting past decisions, looking at the balance of your portfolio, and ensuring you’re on track to meet your financial objectives.

Step one: Look at the balance of your portfolio

The annual review is a reminder of what you own and where you have your money. This includes any investment funds you hold, individual company shares and any cash savings.

You need to ensure your portfolio is balanced. List all your various investments and cash savings and look at how much exposure you have to equities, fixed income, property, and other areas? Is this the right mix of risk and potential reward for your age and financial ambitions?

This process can help you build up an accurate picture of your total net worth and the risk you’re taking to generate returns.

Step two: Assess and analyse performance

The next step is to look at how these investments have performed over the past 12 months, and whether they’ve made – or lost – you money. Is the overall value of your investment portfolio higher than a year ago or has it lost ground?

However, don’t take performance numbers at face value. While it’s easy to bring down the axe if a fund has lost money, you need to look at its performance in context. It is important to look under the bonnet, assessing how an investment has done relative to its peers, wider financial markets, and to its stated goals.

If an investment hasn’t done well. Most investment houses also publish regular updates on their various funds, outlining what they see as the reasons for out and underperformance. You need to decide whether a fund has just had a rough patch and will recover, or whether it has done so well that you might want to take some profits. Don’t switch for switching’s sake, but you need to ensure that it continues to do the job you want it to do.

Step three: Consider personal circumstances

Is your personal situation the same or have there been changes? For example, have you been made redundant, gone through a punishing divorce, or suffered other financial problems?

In these scenarios you may need your investments to generate an income to help you cover the monthly bills and ease a short-term financial squeeze. If your circumstances have improved - you’ve secured a promotion and now have more money to invest for the future – you may want to take a more ‘growth’-focused approach.

It is always worth reviewing your longer-term goals. Are your children still planning to go to university? Have you changed your retirement date? Do you still hanker for that holiday home?

Whatever your plan, you’ll need to build a rough idea of how much you’ll need and therefore how hard your money will have to work. You need to know how much money you’ll need to turn your dreams into reality.

Step four: Consider the risks

How much your money needs to grow will dictate the investments you should be considering. There is always a danger in being ‘recklessly cautious’ – holding too much money in cash or low growth assets, meaning your portfolio doesn’t grow fast enough to meet your goals, or even keep pace with inflation. Generally, to generate higher returns, you will need exposure to riskier asset classes, such as the stock market.

That said, all risk-taking should be prudent and long-term. The goal is striking the right balance between taking enough risk to achieve your investment goals, but still being able to sleep soundly at night.

There are ways to manage risk within portfolios. Diversification – across asset classes, across geographic regions and across investment styles - is a vital part of an investment strategy. Having exposure to a variety of areas means some parts of your portfolio will hopefully be increasing, should others decline. Regular investing is also important in ensuring you invest at a variety of price points and balance risk over time.

Step five: Build your portfolio

There are thousands of potential funds available. Some aim to increase the value of your investment over time, while others provide a steady income. There are then those that will do a bit of both. Once you have taken a hard look at your portfolio, you can decide where you have gaps, or imbalances and find the right fund for you.

While you can choose all the individual funds yourself, if that sounds like hard work, another option is a multi-asset fund in which a manager makes all the investment decisions. You might like to consider one of the four award-winning funds designed by the Chelsea in-house research team.

VT Chelsea Managed Monthly Income

The monthly income fund aims to pay a similar level of income each month* so that you can budget with confidence. The fund targets an above-market income that is sustainable and consistent, as well as some capital growth, over the long term**.

2023 also marked the fifth consecutive year that the final distribution dividend has been paid – this despite the dearth of income generally during the Covid pandemic in 2020/2021, the volatility in markets and the high inflation and interest rates that have plagued markets over the past 18 months.

A total 5.327p has been paid per unit to investors during the year and the fund has paid over 28p of income since it launched in June 2017***. The fund has also delivered more than triple the sector average since launch with 37% returns, compared to 12% for IA Mixed Investment 20-60%****.

The fund invests in income funds, whose underlying assets may include UK and overseas equities, bonds, and targeted absolute return strategies. Current examples of underlying holdings include Guinness Global Equity Income, Artemis Target Return Bond and Schroder Asian Income.

VT Chelsea Managed Cautious Growth

The most cautious fund in the range, this fund aims to produce growth over the long term, but with lower volatility than equity markets**. Investing in a variety of assets, the team carefully selects assets that are less correlated to each other. These are investments that rise or fall independently of each other.

Since launch the fund has returned 23% compare to it’s sector IA Mixed Investment 20-60% which returned 12% during the period****. Current examples of underlying holdings within this fund include Jupiter UK Special Situations and Allianz Strategic Bond.

VT Chelsea Managed Balanced Growth

This fund aims to grow your money over the long term. Delivering excellent returns is not just a case of making gains when the market does well. If you can also lose less when the market falls, you increase your chances of coming out ahead over the medium to long term.

This fund is designed to strike a sensible balance between different types of assets by holding diverse, yet complementary, funds in this portfolio. The target equity weighting is 50-70%, including names such as Fidelity Asia Pacific Opportunities, JOHCM UK Dynamic and Polar Capital Global Insurance.

VT Chelsea Managed Aggressive Growth

The word "aggressive" might initially seem daunting, but if time is on your side you may want to consider taking a higher level of risk to give yourself the best possible chance of long-term gains. Simply put, this fund aims to grow your money over the long term (5+ years). To achieve this, the fund may have a significant weighting to small- and mid-cap equities.

Since launch the fund has returned 41% compare to it’s sector IA Mixed Investment 40-85% which returned 22% during the period****. Current examples within the fund include Ninety One Global Environment, M&G Japan and Rathbone Global Opportunities.

Most importantly: don’t forget to pencil a date in the diary for when you’ll next review your portfolio.

*Income will be smoothed to pay a roughly level amount over 11 months, with a final adjustment payment in the 12th month, which may be more or less than the regular payment.

**Long term is 5+ years. The aim is to have lower volatility than global equities over a rolling 5-year period.

***Source: FE Analytics, income share class, 5 June 2017 to 30 November 2023

****Source: FE Analytics, 5 June 2017 to 1 December 2023

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.