5 steps to keeping track of your investments

There are concerns that a generation have failed to make plans for the future. Picture: PA

Barely a week goes by without warnings of an “ostrich generation” digging their heads in the sand when it comes to putting money aside for retirement. But they’re not the only ones heading for disappointment, with private investors all too often undermining their plans by failing to keep tabs on them.

Yet knowing if your investments are on track is easier said than done. So where do you start? Here’s are some of the factors to consider as you take the temperature of your savings and investments.

1 Know what you want

The main aim may be a comfortable income in retirement or even quitting work early, while others may be more concerned with giving their children a financial helping hand. Review your objectives and ask yourself if you have a realistic plan for achieving them.

Recent Scottish Widows research found that the average Scot is on course for a pension income less than half the level they believe they need in retirement.

“Any investor should have a financial plan,” said Iain Wishart, pictured below, owner of Wishart Wealth Management in Edinburgh. “Where they are today, where they want to be later and how they need to behave in order to get there. Only after that should investments be discussed.”

2 Take stock

Whatever the goal, understanding what you’ve got right now is essential. That means evaluating your assets, income and expenses, according to David Thomson, chief investment officer at Glasgow-based VWM Wealth Management.

Assets might include items such as earning capacity, a business, property, pension, potential inheritance and investments.

Also give some thought to how these will change over time, Thomson suggested.

“For example, disposable income may increase once the mortgage is repaid, allowing greater pension investments and savings at that time,” he said.

3 Are your investments right for you?

Knowing your tolerance for risk and ensuring your investments match it is key.

“There is a psychological propensity for risk and there is also the question of the capacity for loss, i.e whether you can withstand a significant set- back to your investments,” said Thomson.

Work out the annual return that you need to achieve your objectives; a realistic figure will be somewhere between 4 and 8 per cent a year.

“If the hoped-for return is too high in relation to your tolerance for risk then the objectives need to be reviewed,” said Thomson.

Annual returns from a defensive portfolio with 0 to 35 per cent in equities will be no more than 5 per cent, based on historic averages, while an all-equity portfolio can achieve at least 7 per cent growth a year, according to Thomson.

4 Check the mix

Now look more closely at your investments, setting the blend of assets and funds against their performance and your expectations.

Are you finding yourself heavily invested in emerging market equities when in reality all you really want a steady income?

Or perhaps you’re 30 years away from retirement with time to take risks but find you’re investing primarily in bonds and cash.

You may find rebalancing is needed, perhaps to align your portfolio with your risk appetite or to adjust to market conditions.

“Investments set up in the last few years with, say, a 50/50 split of fixed interest and developed world equities will now be more heavily weighted towards equities than was originally the case,” said Wishart.

5 Chop and change

The alignment of a basket of funds with your risk appetite and objectives can quickly become skewed if it contains too many “flavour of the month” products.

“Trying to figure out which fund will lead the field next year or ‘beat the index’ is a fools game,” Wishart claimed. “Even where fund managers have performed well in the past there’s no guarantee they will do so in future.”

Any changes to your mix of assets or the funds you invest in must be for the right reasons, keeping in mind your objectives and risk appetite and only acting if it will improve your prospects.

And finally

Don’t forget to look at charges. The only correlation between high charges and performance is that the former can significantly erode your returns.