Time for a portfolio health-check

Once a financial plan has been put in place, it is tempting to believe that the paperwork can be simply tucked away in a drawer and forgotten. However, like a well-kept garden, a financial plan needs regular tending to ensure it is still on track. ‘Weeds’ can spring up or you may just like to grow something new.

What should a financial health-check comprise?

A financial plan should be regularly reviewed to check it is still fit for purpose. The aims and objectives of a financial plan will have originally been matched to an investor’s goals – to retire at 60, for example, to fund education for children or whatever the case may be.

A review will first look at whether these goals have changed, perhaps with the birth of another child, or a change of job or a surprise inheritance. The review should consider whether investors need to save more or switch to different types of investments to achieve their goals.

A review will also look at an investor’s progress towards their goals. It may be a portfolio has performed particularly well and it is no longer necessary to take as much risk – or the opposite might be true and an investor needs to take on more risk.

A financial health check will also examine whether the underlying investments are performing in line with expectations. Fund managers will have good and bad periods. A run of bad performance may mean their style is out of favour – for example, they may target larger, dividend-paying stocks while the market currently prefers small companies – but your financial adviser will be able to judge whether this is expected or whether it is a sign of a deeper problem. It may be a manager is losing their touch, has left their employer or there are problems within the investment house. In this case, it may be worth switching to another manager.

A portfolio will also need to be tweaked according to the wider economic environment. The 2008 financial crisis changed the investment landscape – for example, the low interest rates that have followed mean income-seekers have had to work harder to generate the same level of yield. While an event of this magnitude will hopefully not repeat itself in the short term, it highlights the importance of regular reviews and ensuring your financial plan continues to be appropriate.

Financial health checks can ensure your garden grows abundantly in all weathers. A little tending can go a long way.

Paul Hoskin from Hoskin Financial Planning