New Year, New Portfolio? The eight investment changes to consider in 2020

Sell your winners and buy more of your losers

It’s really easy to keep holding on to a fund that has delivered you double-digit returns each year, but you need to make sure your portfolio doesn’t become imbalanced. You could run the risk of a large proportion of your portfolio relying on one fund manager or one company, but also having too much concentrated in one asset class or country’s stock market.

Instead you could sell some of the profits of your winning investments, and buy more of the investments that haven’t done so well – assuming you still have conviction in them. It’s tough to do, but could lower the risk of your investments.

…but sell any investments that won’t recover

One of the hardest things to do as an investor is admit you got it wrong – but it’s important to eat a bit of humble pie and consider selling the investments that have underperformed and you’ve lost faith in. It might be a fund manager that has consistently underperformed, or a company that has lost its way.

While you don’t want to chop and change investments too often, you should think about why the holding has underperformed and whether it’s due to market conditions or problems with the specific holding. You need to be ruthless if you think the investment won’t recover, and instead focus on where else you can invest that same money to get a decent return – and hopefully recover some of your losses.

Have you outgrown your investments?

A fund that was right for you when you were 30 and building your pension portfolio might not be right for you now you’re 70 and taking an income from your pension. Or a fund that you picked while saving for a deposit when you were 25 might not be right for you at 45 when you’re saving for retirement.

It’s good to check if your investments still meet your objectives: do you need income or capital growth, has your risk appetite changed, do you need to access the money sooner or not for years? Focus on these questions and then make sure your investments are right for you now.

Stop hoarding cash for no reason

Lots of people will be sitting on too much cash, often because of fear of when to invest it or just because they keep forgetting to get around to investing it. But that cash is likely earning pitiful interest rates and losing money in real terms. Inflation is currently 1.5% while the top cash savings account pays 1.45%, so not enough to keep pace with rising prices.

Holding cash makes sense if you know you need the money in the next few years, or you want an emergency pot you can easily access should you hit hard times. But otherwise think about investing it, even if you gradually put it into the market over time.

Are you invested in drifters?

If you’re invested in a fund or trust you need to make sure your fund manager is sticking to what they know. Lots of investors learnt a harsh lesson on this in 2019 with Neil Woodford, who had drifted into investing in smaller and unlisted companies over the years, and away from FTSE 100 giants.

You buy a fund manager for their expertise in a particular area of investing and don’t want to see them creep into another sector, country or size of company – particularly as it’s likely that a different fund manager already excels in that area. Frustratingly fund managers don’t publish anything beyond their top 10 holdings very often, but check the latest annual report and see what they’re invested in – and that it tallies with what you’d expect.

Get your share class right

This seems like a very technical area to look at, but it can make you more money than picking the right funds. Each fund will have different share classes, which is the same portfolio run by the same fund manager but with two big differences: the charges and whether income is automatically re-invested or not.

First, check the charges on the share class you own and then see whether there is a cheaper option. It could be as easy as switching the share class on your platform. With passive funds you might need to switch fund providers to get a cheaper rate, but check what you’re paying and shop around for similar passive options as costs have plummeted in recent years. It might seem like a small shift, but even a little change in the annual charge can make a big difference: for example, with £100,000 invested over 15 years a 0.5% difference between charges equates to an extra £15,000* in returns.

Next, if the fund generates income do you need it now? If not you could buy the accumulation share class of the fund, and you’ll benefit from the income being re-invested and boosting your returns. This means you benefit from compounding, so getting returns on your returns. As an example of the impact this can have, one of the top performing UK equity income funds has delivered 19.8% over five years for its ‘Income’ unit, but 47.7% for its ‘Accumulation’ unit.

*Based on 5% growth a year after fees

Get organised…

Look at your investment account activity last year and work out whether you’re a methodical Mary or a scattergun Steve. Do you invest money and buy funds with a sporadic approach and no forward planning, or are your investments very organised with regular purchases each month?

If you find your organisational skills are lacking, do something about it. You can set up regular investing, so that your money buys funds or shares every month. Or you can set reminders in your calendar each month or a few times a year to take a look at your account.

…but don’t obsess

While you don’t want to be too hands off, you also don’t want to be checking your account every day, as doing so could mean you end up trading too much. So if you’re one of the almost 7,000 customers who logged into their Youinvest account on Christmas Day last year, maybe take a break this year.

You should be buying investments for the next five or 10 years, not five or 10 days, so you don’t want to be chopping and changing too much. Apart from anything else the cost of trading will eat into your returns. But becoming too obsessed with the ups and downs in your investments can also mean you panic if they fall one day.

These articles are for information purposes only and are not a personal recommendation or advice.