Monday, August 31, 2020
Why it’s Best not to Meddle with Investments
This statement is true for all investors, not just New Accumulators. It can be SO tempting to fiddle with your investments, tweaking them here and there and trying to add value. Let me be crystal clear: in almost every case, the best thing to do with your investment portfolio is NOTHING.
- Costs – sometimes dealing or switching can incur you some fees, depending on the platform you’re on. You could be throwing money away just by fiddling unnecessarily
- Tax – not likely if you’re investing in a pension or an ISA, but outside of those accounts, some portfolio tweaks might incur you some tax of some kind, so be careful
- Timing – You are just as likely to harm your investments by meddling as you are to benefit them. You can’t time things perfectly, so why even try? Most people try to head off losses by shifting some or all of their money into cash, and in doing so miss the inevitable uptick when markets recover
We know by now that in investment markets, the declines are temporary, but the advance is permanent. By tweaking your investments, you are betting that what you’re doing will somehow enhance your returns. In practice, however, your meddling will likely have zero impact, and could have negative impact on your returns.
So, once you have set up your investments, leave them alone for the most part. If you spread your money around and keep costs to a minimum, you’ll be good to go. As an adviser I am responsible under law to my clients to make sure that what I have advised continues to be suitable. There are, to my mind, only two reasons why I (or you) may need to change anything, once it is set up right:
1. Legislation – Sometimes something happens in the personal finance rules which might mean things need to be reconsidered. There are two examples I can think of from the recent past.
One is the advent of the transferrable nil rate band for inheritance tax. Prior to that, if spouses left everything to each other, one of their nil rates bands for inheritance tax was lost. A lot of people set up will trusts to make the use of that, but with the introduction of the transferable nil rate band, that became redundant.
More recently, the pensions freedoms of 2015 made a lot of people review what they had in place. Legislation can be a factor that means things have to be revisited, but that sort of stuff doesn’t happen very often.
2. Your Circumstances – Life happens, and sometimes this means you have to revisit things. So, if you thought you had a 10-year timescale to invest over, but something happens to shorten that significantly, it might mean a rethink of your investment strategy.
Remember, risk and timescale are intrinsically linked, so you might need to rethink your strategy if your timescale is curtailed. But it is life, not investment markets or the economy, that triggers the rethink.
My regular reviews with my clients are primarily about them, not their money. What’s going on in their lives that they might need access to their money earlier than anticipated? It’s my job to know the bigger legislative changes that might affect them, and also my job to tease out the info which might mean a change to their financial plans.
The post Why it’s Best not to Meddle with Investments appeared first on Meaningful Money – Making sense of Money with Pete Matthew | Financial FAQ.
* This article was originally published here
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