Do you understand the way in which an investment portfolio is designed? If not, read on...
There are typically six stages to be worked through before your personal investment portfolio can be created:
1) Risk profiling All investment involves risk and understanding your risk profile is a key starting point. The profiling exercise involves two distinct elements:
a) An assessment of the investment risk you are psychologically prepared to accept, which is usually carried out with the help of a series of profiling questions; and
b) A calculation of the loss your finances could absorb, based on a detailed analysis of your income and expenditure, as well as your assets and liabilities.
2) Goal setting Investment is ultimately a means to an end. There is always a reason – and often more than one – for investing. Understanding what the reason is will set the strategy for the investments we recommend.
3) Asset allocation Once we have understood your acceptable levels of risk and your objectives are agreed, the first high level stage of deciding what to buy begins. Asset allocation, as this stage is labelled, involves a review of the appropriate broad types of investment and within each category the individual sectors.
4) Fund selection Once the high level choices are made, the next decision is which funds to use in each chosen sector. This requires a detailed analysis not only of a variety of performance statistics, but also a qualitative examination of the fund manager.
5) Tax considerations Tax should never dictate investment, but it can determine how and where investments are held – the so-called investment wrappers.
6) Platform selection With the funds chosen and wrapper decisions made, the final part of the process before implementation is the selection of a platform through which to make the investment. Overall value matters more than finding the cheapest.
Please get in touch with us if you need more information about choosing your investment portfolio.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
