HOW TO SPRING CLEAN YOUR PORTFOLIO

If you’re flitting around the house this April, brandishing a feather duster and a mop, spare a thought for your investments, which may need a bit of sprucing up too.

Even the most considered portfolios still need regular reviews, in order to keep them on track and to ensure there are no dusty corners.

There is no need to make changes simply for the sake of it, but equally you might find a few holdings in your portfolio which leave you scratching your head as to why they are there. To add some structure to the process, it might help to consider six key questions.

1. Has your personal situation changed?

Probably the most important thing to assess is whether there have been any material changes in your personal situation. Getting married, having a child, or buying a bigger house can have an impact on your finances, such as your life insurance requirements, and the need to update your will.

But life events might also affect how much risk you’re willing to take with your investment portfolio. For instance, if you’re approaching retirement, you might need to think about dialling risk down a bit.

By contrast, if you’ve received a healthy inheritance, you might find you’re willing to stomach more volatility because financial pressures have eased. Consider what, if anything, has changed personally, and how this might affect your attitude to risk and your financial goals.

2. Has your portfolio become bent out of shape?

Market prices aren’t static, and as a result, neither is the shape of your portfolio. Over short periods this won’t make much difference, but given time, the equilibrium in your portfolio can be lost as some bits move up faster than others.

Regular rebalancing is an important discipline to keep your portfolio in good order. Consider the regional split of your portfolio, as well as the allocation across asset classes.

You should also consider whether any sectors have performed particularly well, and now make up an outsized part of your portfolio.

Finally, see if any specific funds have done a lot better than others and now constitute a large part of your portfolio. That’s clearly a good sign, but it’s worth making sure that your returns are not too heavily reliant on just one fund manager, no matter how good they are, because even the very best can go off the boil.

3. Do you own any serially poor performers?

At the other end of the spectrum, you should check your portfolio for any serially poor performers. These are not funds which have had a bad year, or even three years, which can happen simply because their investment style is out of favour. Rather funds of concern will be those which have lagged behind competitors for a long period and show little sign of change for the better.

You should consider replacing duds with more promising active funds, or cheaper tracker funds, which won’t outperform, but at least aren’t charging the higher fees associated with active management.

4. Is the investment case still solid?

As well as inspecting performance, it is worth checking the fundamental reasons you bought an investment are still in place.

For funds and investment trusts, check there hasn’t been a change in fund manager or strategy, and if there has, consider whether it’s still fit for purpose.

For shares, reflect on whether the reason you bought an investment has now run its course, or has still got some legs. Also consider if the business has undergone a material change in strategy or circumstances which make it a less attractive investment proposition.

5. Have any new ideas or opportunities cropped up?

A portfolio review is a decent time to scout around for new investment ideas, which might replace funds or stocks you’re selling.

Are there any emerging trends you might want to buy into? Or are there any fund managers who have finally clocked up a long enough performance record to merit inclusion in a portfolio?

One thing which has changed dramatically over the last year is the bond market. There has been a big fall in bond prices and a rise in yields. Those who have shunned bonds as part of the diversification in their portfolio, preferring instead perhaps property, gold, cash, or absolute return funds, might think about putting bonds back on the menu.

6. How can I reduce my tax bill?

The final piece of the jigsaw is to make sure your portfolio is invested as tax efficiently as possible. A new tax year means fresh pension and ISA allowances, which will protect your investments from capital gains tax and income tax once they’re wrapped inside the tax shelter.

This year tax planning feels particularly relevant because the capital gains tax allowance is being cut from £12,300 to £6,000, and the dividend allowance is being cut from £2,000 to £1,000.

These allowances will fall to £3,000 and £500 respectively from April 2024, and any gains or dividends above these amounts are taxable if held outside of a tax shelter. The sooner you put your investments inside the ISA or pension, the sooner the protection kicks in.

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