Portfolio Management


Portfolio management and composition are important. Composition of the portfolio at the beginning of the investment takes account of many things. For example, the investor’s

  • circumstances;
  • objectives,
  • investment term,
  • base currency,
  • risk tolerance,
  • capacity for loss; and
  • preferences such as ethical of religious restraints.

In addition to rebalancing, management of the portfolio allows for changes in the investor’s views on those aspects mentioned above as well as external factors including:

  • portfolio performance,
  • economic changes,
  • market changes; and
  • changes in products and services available to the investor.

Portfolio Composition

There are 4 basic building blocks of any retail investment portfolio. These elements are cash, fixed income, property, and shares (equities). Each element has its own unique characteristics and benefits. Developing a portfolio for a retail investor would normally consider all 4 of these building blocks.

The proportions depend on the investor’s risk appetite and objectives. For example, higher risk and longer-term investors may have a higher percentage of shares. Similarly, lower risk, and shorter-term investors would have a greater proportion of cash.

Portfolio Management

One of the most important elements of portfolio management is risk control. A principle way of achieving this is to rebalance the portfolio on an annual basis.

This is because, over time, the proportions of the portfolio invested in the 4 building blocks shifts from the original allocation. This tends to increase the risk of the portfolio. The process of rebalancing returns the proportions of the portfolio to the original percentages allocated at the start of the investment. As a result, the risk of the portfolio back to the original level, all other things being equal.

Rebalancing results in higher dealing costs. Consequently, some judgment is required. There are portfolios available to expatriates which automatically rebalance avoiding the higher dealing costs.

Review

Whilst investment should be more than 5 years, you may not remain invested in the same funds or products for the whole of the time you are invested. Regular reviews are essential.

For example, recently investment costs have fallen dramatically. Many investors in old-style funds would benefit from switching to the new low-cost investment options as this would result in a larger amount of money for them.

Regular reviews also enable you to adjust course by making changes to your portfolio to improve the chances of achieving your goals.

What Should I Do Next?

Please contact us for more information on portfolio management.

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