6 Year-End Investment Tips For A Better New Year

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Nearing the end of the year, most people start reflecting on the resolutions they’ve made earlier in the year and also coming up with new resolutions for the new year. One important thing every investor should do is give their portfolio (and financial adviser) a thorough performance review.

By doing a yearly review, you can keep your investment on track to your financial goals. Sometimes, our financial goals may change due to circumstances, and this is the perfect time to realign your investment portfolio accordingly.

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If you have a financial adviser, the key thing to discuss with him or her is how your investments have performed over the last year. Performance can mean different things to different people, depending on their financial goals and needs.

If you are focusing on long-term retirement savings, then your portfolio may define good performance differently as it is skewed towards long-term growth.

Regardless of what your investment goals are, it’s time to spring-clean your portfolio. So, what cleanups need to be made?

1. Review your financial goals

As we go through different phases in life, so do our financial needs and goals. Your financial goals may change from when you were single, to being married, or even having a child.

If your goals or concerns have changed over the last year, you’ll need to identify that when you are reviewing your portfolio. Make that clear to your financial adviser during your meeting, if you have one.

See if the potential return and risk match with your new goals. However, do bear in mind that past performance is no guarantee of future results.

Also, before making any change, find out how it might affect your investing costs, both immediate and ongoing.

2. Rebalance your portfolio

Having an overview of the past year performance of your portfolio is different from your monthly monitoring. You will be able to see how a particular fund or asset class performed overall in the past one year.

If one asset class has done exceptionally well and now makes up a bigger percentage of your asset allocations, you may want to rebalance it to maintain to diversity. You can do so by selling some of this asset class and using that money to buy other types of investments that you think are able to bring your overall allocation back to an appropriate balance.

You may start out having properly diversified portfolio, but as your money grows, the diversification may become skewed, and this is the perfect time to rebalance everything as you see fit.

3. Change course, if necessary

What if your portfolio is not performing as well as you expected? When you are reviewing your portfolio you may see how certain funds or asset classes are underperforming, and that can derail your financial goals.

You might want to reconsider whether your investments match the current market conditions.

It is not necessary to shake everything up and go back to square one. However, when you are reviewing your portfolio, it is a good time to consider whether you should cut your losses, or change course.

However, investment can be a game of patience. If you are the type of investors who put in money systematically, in the right shares, you may consider holding on to your investments patiently, and you may see your investment generate outstanding returns. It is important to know when to exit and when to be patient. Follow a disciplined investment approach besides keeping a long-term broad picture in mind.

4. Dollar cost averaging

New year brings new hope. After reviewing the previous performance of your portfolio, you may want to expand or branch out to new areas of investment in 2015. That can be risky, as you are likely to be stepping into unfamilliar territory.

To reduce some of that risk, you can consider employing dollar cost averaging when buying investments. Instead of putting in a big lump sum into a fund or stock, buy at regular intervals in fixed amount to help shield your portfolio from price swings.

For example, Investor A is really bullish on Carlsberg stocks over the long term and want to invest RM5,000 in it. Rather than buying the stocks in one fell swoop, it might make sense to drip feed the investment over 12 months, if you have a long-term perspective.

From month to month, that RM400 plus may get you more shares (or fewer shares) depending on fluctuations in the share price.

However, you may end up with a lower overall average per share price over 12 months with dollar cost averaging.

5. Diversify your portfolio

Reviewing your portfolio also allows you to see how your investment performs collectively instead of just looking at a particular fund or stocks. If your overall portfolio is not performing the way you would like it to, it may not be diversified enough for the current market condition.

Diversifying your portfolio does not just mean putting your money into different asset classes, but you also need to further diversify it within each class. For example, if your portfolio is diversified into shares, property, unit trust and cash, the ideal diversification will be to hold different types of stocks in the shares portion of your portfolio — such as healthcare, fast-moving consumer goods (FMCG), and others.

By doing so, you can protect your portfolio from being ravaged when a single industry — say, financial services or health care — dips.

Aim for a broad mix of fixed income investments with varying maturities, markets and sensitivities to interest rate changes and inflation fluctuations.

6. Review your cost and charges

Every investment costs money. However, it doesn’t make sense if the costs and charges turn your returns to losses.

So, how do you manage the costs and still diversify your investments? Calculate your returns after deducting your investment costs to see the net return. Find out all the expenses that are embedded in each investment choice: management fees, expense ratio, sales charges and others.

If you are engaging the service of a financial adviser, do include the fees incurred into your return calculation as well.

As investment fees and charges are becoming more and more transparent, it is not too tough to plan your investments. It’s just a matter of reading the fine print – or better yet, making a firm and formal request for fee information.

There’s nothing wrong with hoping for the ‘best’ from your investments, but you could be heading for trouble if you leave your investment solely to luck. Have a realistic expectation and make systematic and calculated decisions when it comes to your investment.

Even though you are not going through major life changing moment, it still benefits you to review your portfolio at least once a year.

If you can’t review your portfolio due to time constraint or lack of knowledge, then you should get the help of a good financial adviser.

Nearing the end of the year, most people start reflecting on the resolutions they’ve made earlier in the year and also coming up with new resolutions for the new year. One important thing every investor should do is give their portfolio (and financial adviser) a thorough performance review.

By doing a yearly review, you can keep your investment on track to your financial goals. Sometimes, our financial goals may change due to circumstances, and this is the perfect time to realign your investment portfolio accordingly.

If you have a financial adviser, the key thing to discuss with him or her is how your investments have performed over the last year. Performance can mean different things to different people, depending on their financial goals and needs.

If you are focusing on long-term retirement savings, then your portfolio may define good performance differently as it is skewed towards long-term growth.

Regardless of what your investment goals are, it’s time to spring-clean your portfolio. So, what cleanups need to be made?

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