New Year investment resolutions

New Year is not just a time for getting fit and eating healthily. Rob Morgan sets out five investment resolutions - which might be easier to keep.

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  1. Rob Morgan

The start of the year is often a time for resolving to get fit, eat more healthily or forsake that evening glass of wine. It can also be a great time to take a fresh look at your portfolio, or undertake to make the most of your money. Here are five financial ‘resolutions’ worth considering.

Make use of tax efficient allowances

No one likes paying tax, but you can resolve to ensure your financial affairs are as tax efficient as possible. While the end of the tax year seems a long way off, now could be a good time to start planning ahead to ensure you beat the deadline of April 5th to use this tax year’s allowances.

ISAs can be used to both invest tax efficiently, and Junior ISAs can be used as additional provision for children. The allowances for the current 2018/19 tax year are £20,000 and £4,260 respectively. Pensions can be also worth considering to reduce your tax liability in the short term due to the income tax relief on offer – though they are investments that must be kept for the long term and tax relief depends on personal circumstances.

Ensure your portfolio is diversified

Diversifying, spreading your money between different investments and asset classes, can lead to a less bumpy ride. If one of the investments is performing poorly, another one could be making up for it. Ensure your portfolio is built of various assets so it is not overly reliant on any one area performing well, particularly if you are anticipating volatility ahead. It’s usually too late to rearrange in the midst of market-moving news.

Portfolios can become out of kilter over time as asset classes rise or fall at different rates. After a rise in markets you may find that riskier asset classes have outperformed and account for a larger percentage. It may be a good time to take profits in these areas and redistribute to less adventurous areas in order to maintain an appropriate level of diversification and risk. On the other hand, falling markets may mean that areas with greater long term potential have dwindled as a percentage of your portfolio. Topping up with a little of what has done badly can help keep your portfolio balanced.

Stay focused on your strategy

Financial markets can be volatile, and downs as well as ups are part of investing in stock markets. Ignoring short-term market “noise” to keep focused on a long-term investment strategy can be hard. But short-term declines should not detract from the potential of riskier assets to help meet longer term goals.

Trying to time the markets means investors must get two important decisions right: when to get out and when to get back in. This means there is a risk of having to pay a higher price to reinvest, and missing out on any dividend or other income in the meantime. Markets are unpredictable and allowing emotions to drive investment decisions rarely serves investors well.

Examine your fund choices

It’s worth periodically re-examining your fund choices to ensure they meet your needs and whether you are getting value for money. Fund charges can eat into your investment performance, so the use of low-cost passive funds or ‘trackers’ that aim to follow market indices could help minimise this effect.

Another route is aiming to pick funds with a reasonable chance of long term outperformance. ‘Active’ funds try to beat their benchmarks, though there are no guarantees they will do so and they often come with higher charges than passive funds. Active managers need to justify their higher charges by being sufficiently differentiated from simple, low-cost trackers – usually by holding a significant amount in stocks that are different to the large ones in the index.

Get some help if needed

For more complex financial decisions you may wish to consider regulated financial advice. A financial adviser can help assess your existing finances, whether you are on track to meet your retirement goals and help structure your affairs as tax efficiently as possible. Although Charles Stanley Direct is a non-advised, self-directed way to invest, if you are looking for a premium and personal investment service the wider Charles Stanley Group offers a comprehensive range.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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