One key element of protecting your wealth – whether you are looking at tax and estate planning, investments or pensions – is that the arrangements and strategies you use should be designed around your personal circumstances and aims.
A tailor-made strategic approach is key for the success of your investment portfolio, created and managed to meet your objectives, time horizon and risk tolerance.
Many people have portfolios which are unsuitable for them. They carry a higher level of risk than they realise or want; have inadequate diversification or own many illiquid assets or unregulated investments. Or the investment choices or combination of them may not meet their needs.
Alternatively, being too cautious can have consequences in your later years.
Many retirees leave savings in bank deposits, believing it’s the safe approach, but you need to consider the impact inflation and low interest rates can have on cash deposits.
Even low inflation rates will erode your value of your savings when compounded year after year. As a basic illustration, if you have €50,000 in a current account with no growth and inflation is 3% every year, after 10 years its value falls to around €37,000. After 30 years it’s just €20,555 – a 59% reduction in purchasing power.
Managing and balancing risk
Some risk is unavoidable to achieve an investment return to keep pace with inflation. To avoid undue risk, obtain a clear and objective assessment of your personal appetite for risk.
You then look at allocation of assets between equities, bonds, real assets and cash to create the most appropriate portfolio to match your profile and objectives.
The tried and tested strategy to mitigate risk is diversification — a well spread portfolio of investments across asset classes, geographic regions and market sectors, to limit your exposure to any single sector. It is widely acknowledged that asset allocation is of greater importance than the selection of individual stocks and shares.
Specialist advice is essential to select the most appropriate investment strategies and asset managers to meet your needs.
Reassess your portfolio regularly and adjust the strategy accordingly. Market conditions change and asset prices rise and fall, affecting the portfolio risk. Also consider any changes in personal circumstances.
For peace of mind, get your appetite for risk assessed objectively and matched to the optimum investment portfolio; diversify across assets markets and investment views, ensure your assets are in a tax-efficient structure, and carry out annual reviews.
This article should not be construed as providing any personalised investment or taxation advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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