Resolve to diversify investments

As we reach the end of February how are your 2025 New Year resolutions bearing up?

“Dry January” resolutions are notoriously difficult to keep, however there is a different challenge for 2025 that you should certainly resolve to complete – investment diversification.

The stock market has certainly made a flying start to the year, with the FTSE-100 hitting a new peak in January.

When a market reaches a new record high there is generally the uncertainty of “what next?” Is a correction around the corner or are we entering a new bull market phase?

One thing is certain, a market peak is usually a good time to review how you have allocated your overall invested wealth.

Are you potentially overexposed to any single market or asset class, for example? Would a significant correction in one asset value have a disproportionate impact on your overall wealth?

With just over a month left until the end of the tax year now is also the perfect time to consider whether you have taken full advantage of your available tax relief and annual personal allowances.

Successful asset wrapper diversification is a crucial element of your overall financial planning strategy. It is key to protecting as much of your accumulating wealth as is possible from any further government tax changes.

Both Capital Gains Tax and Inheritance Tax are clearly in the sights of the Chancellor and there is no guarantee that Rachel Reeves will not tinker with the tax benefits of your private pension fund.

This is why investment diversification could prove hugely beneficial to your future prosperity.

As a rule of thumb, investors with a portfolio of investments and pensions valued at more than £250,000 should consider diversifying their invested wealth across a range of stock markets and asset classes.

It is an important strategy aimed at mitigating risk and maximising returns.

And looking at the ten-year average past performance of actively managed investment funds reveals the benefits of a well-managed diversification strategy.

From January 2015 until January this year, the average total return from total Global Equity Growth funds was 182.6 per cent compared to 67 per cent for the average of all UK-only equity funds.

To put those numbers into some perspective, a portfolio of £250,000 invested exclusively in the average UK equity fund in the ten years up to the end of January could have grown to a value of £417,500.

But a diversification of an investor’s stock market investments worldwide into the average Global Equity Growth funds could have boosted that value to £706,500.

That represents a significant 69 per cent increase in value set next to a comparable UK-only investment strategy conducted over the same time period.

Despite the record high for the FTSE-100, the performance of an investment portfolio overweight in UK stocks and shares would have fared much less well over the past decade than a globally diversified investment strategy.

An active diversification strategy shouldn’t just stop at stocks and shares. You must ensure your invested wealth doesn’t just rely on one such type of investment. Spreading risk is essential, taking into account investors’ different appetites for the levels of risk they wish to take.

This is where a financial planner can add significant value. They can tailor a diversification investment strategy to meet your specific risk appetite and then regularly amend and adjust it to ensure that your financial goals remain on track. A well-managed multi-asset diversified investment strategy is a major tool that can help reduce your exposure to a single market or asset correction.

So, making a full review of the effectiveness of your current investment and tax diversification strategy is probably the single most important financial resolution that you should keep in 2025.

Get that right today and the year could be a much more prosperous one for you and your family.

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Simon Wigglesworth is a director and chartered financial planner at Waverton Wealth