I have an investment portfolio, investing in funds recommended by my financial adviser. I’ve always been happy to take a certain level of risk in order to try to get better than average returns, although that hasn’t always paid off. My portfolio has lost value this year because the market took such a dive in the early days of the COVID-19 crisis but it is creeping up again now. It may be because of my age – I turned 50 this year – or because things seem unlikely to recover quickly, but I’m finding I’m more nervous about my money losing value now than I used to be. Do you think I should change my portfolio to use more cash deposits now?
Carl Lamb of Smith & Pinching Responds
It’s certainly true that investing has been challenging this year: we have seen some recovery from early market falls but markets are still troubled as the news about the pandemic changes from week to week.
Global events like this will have a definite impact on your attitude to risk and you are right that your age makes a difference too. It’s important to revisit the risk level of your portfolio on a regular basis: your adviser should reassess your investment risk profile in depth whenever you have a financial review.
Different types of investment carry different levels of risk. You can certainly change the content of your portfolio to ensure that you are comfortable with the level of risk you are taking. You can hold investment assets with higher and lower risk ratings, but the overall profile of your portfolio should match your own investment risk profile. Your portfolio can include cash investments such as Cash ISAs, but it is important to remember that this type of investment will struggle to keep pace with inflation, given the current low rates of interest on offer.
Moving your money around between investment assets at the moment should also be approached with caution as there is a danger that selling assets now would lead to locking in losses. It may be more appropriate to wait until markets have recovered further before moving things around.
One option available to you to help mitigate falls in the market is to use a portfolio management service. This involves allowing a portfolio manager to make changes to the content of your portfolio on a regular basis within agreed parameters, such as your risk profile, with a view to matching or exceeding an agreed benchmark. This is available from some firms as part of their core investment proposition or as a third-party add-on.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
Carl is a Director and Chartered Financial Planner with Smith & Pinching