Tips on how to improve your investment portfolio

Tempted to ditch your financial resolutions? We share some ideas for how to better manage your finances.

January might feel like a long month, and we’re only halfway through. While it may be tempting to ditch those new year resolutions in favour of the status quo, interactive investor suggests hanging on to those best-laid plans to better manage your finances.

As ‘Quitters Day’ approaches on 19 January, when those resolutions are finally shown the door, Moira O’Neill, Head of Personal Finance, and Myron Jobson, Personal Finance Campaigner, interactive investor, share some tips for investors.

Traffic-light your investments

Moira O’Neill, Head of Personal Finance, interactive investor, says: “It might seem counter-intuitive, but a good clean of your portfolio once or twice a year can rejuvenate your portfolio. 

“Knowing when to cut your losses isn’t easy, either. A good way of keeping on top of your investments is to get a spreadsheet out and traffic-light your investments - green to highlight things are going well, amber to show you need to review it more often and red for when the investment has run out of chances and it’s time to sell and find a better option.”

Has your risk profile changed?

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “Risk is an inherent part of investing, but it’s a tough balance. Take too much risk, and you might find yourself racking up some painful investing lessons.

“But taking too little (or no risk in the case of cash) is a risky strategy in itself. It could have a hugely detrimental effect on your finances in future – because you might not reach your goals. And our risk appetite isn’t static, either – it can change as our circumstances change –so needs reviewing regularly.”

Review your workplace pension

Moira O’Neill, Head of Personal Finance, interactive investor, adds: “Getting under the bonnet of your pension is a good financial priority, and it needn’t be rocket science – a quick call and a couple of questions to your provider could have a big impact down the line. 

“It’s well worth checking whether your workplace pension scheme is aligned to how you plan to access your pension savings at retirement. Pension lifestyling, or the ‘pensions glidepath’, which is still common, reduces your exposure to risky assets such as equities in the five to 15 years before retirement, moving you gradually into gilts or cash. 

“Before pensions freedoms, most people bought an annuity at retirement. This made sense, and still does for many. But a lot of us now invest throughout our retirement, and moving out of equities too early could hit you hard. So check, and the same goes for your retirement age – a 55-60 box ticked years ago might have seemed like a good idea at the time but could be overly optimistic. It’s important if you don’t want to be getting de-risked into your mid-forties, at precisely the time when many investors are only just getting going.” [see notes to editors for lifestyling scenarios*].

Controlling charges, a golden rule of capital preservation

Moira O’Neill, Head of Personal Finance, interactive investor, says: “Investors cannot control the market but they can control how much they pay to invest, and it’s one of the golden rules of capital preservation. There are some great platform comparison sites out there, and a good starting point is to think about your pot size. Whereas for investors starting out with small pots, a percentage fee will be more competitive, for larger pot sizes a flat-fee charging structure, in pounds and pence, can be far more competitive and means that as your assets grow, your charges stay the same. Over the long term, the differences can add up to thousands of pounds.”

Save more into your workplace pension – every little helps

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “Even relatively modest additional contributions can really add up. An 8% auto-enrolment contribution (3% employer, 4% employee and 1% tax relief) from age 22 through to retirement age (67) could be boosted by £49,000 had an extra £25 per month been paid in (£20 from employee, £5 in tax relief).

“This assumes a 5% average annual return. With an extra £50 per month (£40 from the employee and £10 in tax relief), you could be £98,000 better off. The figures assume a £20,000 qualifying earnings from age 22, and don’t factor in inflation or pay increases and are for illustrative purposes.”