How to spring clean your portfolio

Rob Morgan looks at ways to ensure your investments are working as hard as possible.

| 6 min read

It feels like we are standing at an investment fork in the road, which is why global markets are in a state of flux. In one direction lies growth but perhaps with more persistent inflation, the other falling demand resulting from higher interest rates – and the resurgence of deflationary forces and possibly even recession.

Central banks have important decisions to make. Ideally, they would like to forge a path down the middle of these two outcomes, growth with modest inflation, but it won’t be easy to pull off. Markets are at the mercy of instability caused by higher commodity prices, exacerbated by Russia’s invasion of Ukraine. New patterns of behaviour and continuing disruption from Covid continue to make their mark, and we are seeing a turning point for globalisation as companies and governments re-evaluate supply chains in order to reduce the risk of shocks. Much of this is inflationary.

The tried and tested means to combat inflation is higher interest rates, but this has bad consequences for consumer spending, and means costlier borrowing for businesses. Bonds markets (representing government and corporate borrowing) have been under pressure as yields (the levels of income they pay) adjust to the more inflationary outlook in both the short and longer term, but there are still concerns that, even at these levels, they remain vulnerable to central bank tightening.

Yet there are also some important positives to reflect on. Corporate earnings and balance sheets for the most part remain robust and dividend growth is strong. What’s more, there remains plenty of important structural trends that should stand to benefit investors in the right areas. Some identified by our research team are energy security and transition to green sources, robotics and automation to improve productivity, the onshoring of manufacturing and cyber security.

Check your portfolio is balanced

In light of the current outlook, we believe investors should have a balanced portfolio that insulates them as far as possible from the impact of different economic scenarios.

If certain investments have grown to represent a significantly larger proportion of your portfolio it could mean additional risk. It can be prudent to bank profits in these and use the proceeds to top up in areas that have underperformed – thereby retaining the intended balance of your portfolio and helping smooth out returns.

Take a look at our investment ideas

If you are looking to invest new money or to rebalance your portfolio, and are looking for some inspiration, our Preferred Fund List offers a selection of ideas for new investment covering the major sectors. You can filter by active or passive investment type, or sector, and find options for responsible investing.

Among active funds, we aim to provide a variety of investment styles on the list so there should always be something with performance potential.

Be an ISA early bird

While many people leave their ISA contributions until the end of the tax year, it is often better to use the allowance early. That way your chosen investments are sheltered from tax immediately and have longer to produce income and growth – though it is also possible it could work against you should they fall in value over the course of the tax year.

For the 2022/23 tax year the ISA allowance is £20,000, but don’t worry if you don’t have this large lump sum to invest right away. With Charles Stanley you can contribute smaller amounts to our Stocks and Shares ISA as and when you like, or set up regular savings from your bank account. This can also be a way of helping counter the market ups and downs, as well as take some of the stress out of investing because you are putting money in at different levels. It can even turn market volatility to your advantage as you ‘average down’ if prices fall further in the shorter term.

Power up your pensions

Pensions are also an important consideration and a powerful way to invest for retirement. When you make a contribution to your pension, the government adds money. This is called tax relief and is one of the main advantages of using a pension to save for retirement.

An investor can receive up to 45% tax relief when they make a contribution to a personal pension such as a SIPP (Self Invested Personal Pension), with 20% paid by the HMRC into the pension and any higher and additional rate income tax reclaimable. There’s more on the benefits in my article on the best way to invest for retirement.

Use our Foundation Investment Review Service

For an annual fee of £360, will put you in touch with a financial professional to assist you in identifying where changes may be required. At the end of the review, you will have a clear understanding on how your portfolio is invested and how it is progressing, allowing you the opportunity to make informed investment decisions to structure your portfolio to meet your needs.

This review is ideal for:

• those who seek a regular review and value doing this with an experienced professional to help them in this process

• those who have done well but are looking to ensure the investment risks match up with what they consider reasonable

• those looking to see where they could be going wrong and are in need of inspiration

• those who simply don’t have the knowledge or experience to know where to begin

Keeping track of your investments is key to ensuring your goals and ambitions are achievable. Incorporating a regular review will highlight where adjustments to your portfolio may be necessary. If you have investments outside of Charles Stanley, this is not a problem as we can incorporate these into your review in order to give you a complete picture. For more information on our Foundation Investment Review Service, or to get started, please contact us on 01482 861 455 or email [email protected]

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

How to spring clean your portfolio

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The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.

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