Is Your Share Portfolio Out of Date?

Legendary investors such as Warren Buffet follow the same principle as responsible dog owners; buying shares is for life.

This mindset encourages us to think of buying shares as the start of a long journey. This is in contrast to those who treat the stock market like a game based on chance and timing.

My view is that there’s no right time to buy shares and no optimal moment to sell them.

That being said, I don’t believe that your stocks and shares ISA should be chiselled into stone. You should regularly review your investments at least once a year, to check that your basic investment portfolio is still fit for purpose.

This article will set out the ways in which your portfolio can become outdated, and what you can do to update your holdings accordingly.

1 – Are your investments suitable for your time horizon?

Your investment time horizon is the length of time between the present and the moment you will need to convert your funds into cash.

If your time horizon runs to a fixed point, such as a house purchase or retirement date, it will usually slowly tick down over time.

As I explain in a dedicated article, some investments are only appropriate for long time horizons. This means that as a distant milestone comes into view, you will eventually cross the threshold at which shares and property become inappropriate.

As you get closer and closer to a cash-out opportunity, you should begin to sell down riskier investments and move money into lower-risk investments which are dependable over the short term. This is great financial planning at work. The best retirement planning books suggest various rules of thumb for how to change your asset allocation as time passes.

Some funds do this for you – Vanguard manages a series of funds that are based around a target retirement date. As that date approaches, the fund slowly shifts from equities to bonds, which reduces the likelihood of a crippling market crash impacting your ability to achieve a target retirement income.

2 – Are your investments suited for your risk appetite?

Some things never change, and some things do. Your investing risk appetite is in the latter category.

Over time, several things can drive our risk appetite away from where we started;

  • Our ability to earn income diminishes as we approach the end of our career. Future income is a safety net against investment losses, so this reduces our willingness to take risk;
  • Positive or negative investing experiences can shape our expectations of how investments will perform in the future;
  • Our time horizons shorten. When a milestone such as retirement comes into view, we begin to make life plans around the date. Our willingness to delay that event because of disappointing investment returns reduces. Therefore retirement investment portfolios tend to incorporate a lower risk appetite.

As a result, it’s useful to reassess your investing risk appetite with our questionnaire when you review your portfolio, to check that you are comfortable to continue taking the same risks.

Read more: The best financial risk management books

3 – Are your investments still in line with your investment strategy?

Because individual investments grow at different rates, the make-up of your portfolio after 5 years could be dramatically different to the outset.

Pruning and tweaking your portfolio to return it to your original vision is known as re-balancing your investment portfolio, which is the topic of a separate article.

Here are some other useful share investment questions I have answered in other posts:

If you have any questions about investing in general, or constructing your own portfolio – leave a comment below and I’ll create an article tailored to your preferred topic.

Read more: The best portfolio management books

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