Are you an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor


Register for FundCalibre!

We just need to know
if you are an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor


add alt text

Tony Yousefian

1. One of the first rules of portfolio planning is to consider your current and future needs. If you currently hold an adventurous portfolio and are already in retirement, then you may wish to reduce the risk of your portfolio in order to consolidate the gains of previous years.

2. The longer the time horizon before you need to realise your investment the riskier you can afford to be, although obviously your personal attitude to risk is of paramount importance. For instance, if you are saving to pay off a mortgage, you may wish to have a higher risk profile in the early years when your investment has 25 years to run, but in later years a lower-risk strategy would be appropriate allowing you to consolidate your gains.

3. Assessing your own risk profile is important. Whilst a higher-risk approach is generally advocated for those with a greater amount to invest and a longer time horizon, an ability to accept risk is also important. It is no good deciding that you are in a position to take a higher-risk approach, if such action causes endless sleepless nights when markets fall! For instance, if you are comfortable with short-term losses and happy to invest for a long period of time, then you might think of yourself as ‘Adventurous’. However, if swings in valuation worry you and perhaps you are closer to retirement, you might prefer to take a ‘Conservative' or 'Cautious’ stance.

4. One of the ways to reduce the volatility of your portfolio, apart from selecting funds with a lower risk rating, is to diversify your holdings. The greater the spread of funds, the more you reduce your risk. However, spreading your assets across too many funds means that those which perform strongly will have little impact on overall performance.

5. Balance is also important, the greater the spread of sectors/asset classes the less your portfolio will be subject to swings in market sentiment. Even if you have a strong personal preference for a particular sector, it is not a good idea to plough all your money into it. It is preferable to give a greater weighting to your preferred sector, whilst maintaining a reduced weighting in other areas.

6. It is important to remember to monitor your portfolio, preferably on at least an annual basis. There is a huge benefit to taking some time to analyse your portfolio to prevent sector and country biases creeping in. It is possible that occasionally some rebalancing may be required in order to maintain the equilibrium of your fund split and therefore the risk profile of your portfolio. Otherwise when a volatile fund performs well and you retain that holding, the overall risk profile of the portfolio increases.

7. The number of funds which should be held within a portfolio will vary depending upon the amount invested. As a rough guide, a reasonable number would be around 10 funds in a portfolio of over £30,000 and 15-20 in one over £100,000.

Click here to learn about our Elite Portfolios.