Need to Re-Balance Your Investment Portfolio for 2018?

Interests rates me be rising but they are still a long way off it making sense for savers and investors to rely on the interest rate generated by cash holdings. With inflation now at a fraction above 3% and the top interest rates available on cash a maximum of 3%, and usually only up to a maximum of £1000 or £1500, cash will still see its value eroded in 2018. Savings accounts that don’t have a cap on cash sums interest is paid on rarely offer much more than 1% and if they do it’s a marginal improvement. As such, a well diversified investment portfolio is crucial for anyone who hopes to stay ahead of the inflation curve.

With that in mind, Close Brothers Asset Management have some advice when it comes to assessing an investment portfolio over the Christmas period to make sure it is in good shape going into the new year. It’s good solid advice for anyone investing online via an ISA or SIPP.

Andy Cumming, Close Brothers’ head of advice believes a well-balanced investment portfolio that balances risk and reward with the prospect for strong long-term growth should include a mix of equities, bonds and alternative assets such as property. This mix balances long term growth prospects while balancing out short term volatility.

Cumming also advises those investing online to take full advantage of the tax advantages that holding assets in an ISA or SIPP provides. Up to £20,000 a year can be invested through an ISA, which means no tax will be paid on either income or profits. For SIPPs, the annual allowance is £40,000, meaning a total of £60,000 can be paid into investment portfolios a year through these tax efficient vehicles.

For those who aren’t able to invest as much as £60,000 annually, which is most of us, Cumming also recommends splitting investing online between an ISA and a SIPP. Assets held in a SIPP can’t be accessed until the holder is at least 55. This means that in an emergency situation such as unemployment or a family emergency at least a part of savings and investments should offer the kind of flexible access an ISA provides.

While not mentioned by Cumming, keeping 10% to 20% of assets in cash can also be a good idea despite the erosive impact of inflation when compared to interest rates. This means if markets fall, which is a possibility in 2018 though not one strongly tipped, equities and other assets won’t need to be sold while their values are down. A cash buffer means they can be held until a recovery takes hold and prices recover, while also providing buying power to buy cheaper while markets are down and take advantage of a subsequent recovery.