This year is unlike any other in recent times, and has resulted in significant changes to many investors’ personal financial situations and investments.

Looking ahead, experts are divided over the threat of inflation while the COVID-19 health crisis continues to cloud the economic outlook.

Regular investment portfolio reviews are always a good idea, but in times of change it’s even more important to ensure that your holdings and investment strategy continue to match your financial goals, personal circumstances and tolerance for risk.

Here we share our top five tips for your investment portfolio review.

1. Reflect on your personal financial situation

Any investment portfolio review should begin with a clear understanding of your current financial situation, which may be very different to what it was a year ago. Reflect on where you are now relative to the financial goals you had back then, and what, if anything, may have changed.

Questions to ask yourself include: Do you have a full, up-to-date picture of your current net worth? How has the value of your property and other holdings changed? Is your current cash position adequate to meet your short-term needs as well as contingencies? If your employment status has altered, what are the implications for your financial planning?

2. Review your financial goals

Whether they are short-term (such as a monthly budget) or long-term (saving for the next lifestyle phase or that next holiday when travel restrictions ease), you should constantly re-evaluate your goals over time, and reflect the ever-changing investing environment.

If you’re still accumulating assets then you need to know whether your current portfolio balance, in conjunction with your savings rate, have you on track to reach whatever goals you’re working towards.

For those who are already retired, the key metric is the relationship between your withdrawal rate and your portfolio. The “4% rule” is an often-cited framework for safely drawing down retirement portfolios, but it’s worth considering whether such an approach to spending is relevant in today’s environment of low yields and inflationary threats.

3. Assess your investment strategy and diversification

Check that your current investment strategy is appropriate to help you reach your financial goals. It should consider your personal circumstances, tolerance for risk and investing timeframe.

If your portfolio changed significantly over the last financial year, reassess its diversification across different asset classes and within each asset class. This is the single most powerful tool available to you for lowering risk and volatility while boosting your portfolio’s ability to generate returns and preserve your capital. 

It’s a simple concept, but it can be challenging to implement. To learn more, read How to make the power of diversification and asset classes really work for you.

4. Getting the balance right

Portfolios can naturally become skewed towards some asset types as the values of individual investments fluctuate over time. Periodic rebalancing brings your holdings back in line with your risk-return profile and ensures that they continue to match your investment strategy and lifestyle objectives.

Rebalancing allows you to take advantage of outperformance, while ensuring you are not more exposed to any particular asset class than you should be. It can be achieved by selling a portion of your better performing assets and using the proceeds to buy others to ensure your relative weightings, or mix of asset classes and types of investments, are still in line with your portfolio strategy. 

Before making any investment decisions, we recommend seeking advice from a licensed financial adviser to ensure your investment portfolio is tailored to your unique needs.

5. Attend to tax matters

It is essential to understand the tax implications of your investments. This helps with tax planning and ensuring that you are tax compliant.

For example, the Australian Tax Office requires self-managed super funds to re-value each asset every June 30 – and sometimes more frequently in between.

Depending on your personal situation, you may also want to consider including certain investments in your portfolio that offer potential tax advantages. For example, if you’re an Australian investor in a property trust, you may be eligible to receive tax-deferred amounts on your distribution income – which may reduce the amount of income tax you pay from your investment in the trust in a given financial year.

*Please note, Trilogy Funds is not able to provide you with tax or financial advice and we recommend you seek an independent professional consultation about the taxation treatment of your investment when completing your tax return.

This article by Trilogy Funds Management Limited ABN 59 080 383 679 (Trilogy Funds) does not take into account your objectives, personal circumstances or needs, nor is it an offer of securities. Investments in Trilogy Funds products are only available through the relevant PDS issued by Trilogy Funds and available at www.trilogyfunds.com.au. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Investments with Trilogy Funds are not bank deposits and are not government guaranteed.