It’s important to treat your investments with care and attention – just like your home. Keeping on top of your finances and investments is a process that you’ll need to keep on top of.
Now, we’re not saying it’s an insurmountable amount of work! Just that you do need to know about a few jobs you’ll need to do every now and again.
To help, here’s our top 5 tips on some essential housekeeping tasks you need to know about to keep on top of your investments and really make them work for you.
1. Regularly review your finances
An essential part of any investment strategy is regularly reviewing your financial health. This means looking at your income, outgoings and savings to see how you’re doing and whether you’re on track to meet your goals.
This is about more than just reviewing your investments itself. While you should review your investments as often as you can to make sure they’re growing your portfolio, reviewing your wider finances is another important task.
It can help you understand whether you’re investing the right amount, or whether there’s scope in your finances to invest more. Especially over the past couple of years, where many of us have found ourselves with savings we didn’t expect, it’s a good time to review your finances and see if you’ve got any money lying around that could be doing more.
2. Save (and invest) little and often
When it comes to saving, little and often is the key. It’s also true about investing – you’re often better off trickling extra money into your investment portfolio rather than adding a big lump sum.
Investing little sums reduces your exposure to big risks. If you put a large amount into the stock market and then soon after, there’s a dip, you could lose a lot of money all at once. This goes even further if you’re investing in individual companies. But, if you drip feed money in over time, your exposure to short term dips is lower.
Plus, regularly adding smaller amounts of money into your investment portfolio is a great way to affordably grow your investments.
3. Understand the benefits of compounding
When it comes to investing, compounding is your friend. Compounding, or compound interest, means that over time, your growth accelerates. With investments, this means reinvesting your profits or dividends, assuming you’re not planning on taking them as income.
If you reinvest your profits, you’ll find your portfolio grows even quicker through the power of compounding. Consider whether prioritising the overall growth of your portfolio by reinvesting your gains is a better way to meet your long-term financial goals.
4. Ensure you’ve got a diversified portfolio
It’s absolutely vital to make sure that your investment portfolio is properly diversified. This means investing in a range of different assets. You could do this by investing in a number of funds, or by choosing to invest across stocks, properties, bonds, etc.
Diversification essentially means investing your money across a variety of different assets, which are all affected by different things. This means if the stock market does fall, you might find that although one part of your portfolio has lost money, another part has increased in value. It can be hard to do as an individual investor, so do speak to a professional investment manager if you’re finding it difficult.
5. Rebalance your portfolio when required
On top of diversifying your portfolio in terms of the assets that you buy, you also need to ensure that the balance of investments in your portfolio meets your attitude to risk. Over time, as some investments grow quicker than others, you may find that riskier parts of your portfolio make up a bigger percentage of the overall portfolio than you’d like. This could leave you over-exposed to any potential losses in that area, wiping out all of your gains.
Rebalancing your portfolio is part of sensible, active investment management. To rebalance, you could either sell some of the assets which have grown and invest the profits into safer assets, or add more money to the portfolio to balance the overall percentages out better, if you have the extra money to invest.
Whichever you choose, it’s worthwhile spending the time to look at the overall balance of your portfolio. Not doing so could leave you accidentally pursuing a far riskier strategy than you’d planned for!