Taking Stock Of Your Portfolio: Is Once A Year Enough?

How many times a year do you review your diet, your exercise plan, your relationship, your business model? For most of us, this is a near daily, weekly or monthly process. Your investment approach should be no different.

The importance of a well-structured investment portfolio is critical to wellbeing across all aspects of our lives, and yet the industry at large continues to focus on an annual review rather than an ongoing process of engagement. Quite frankly, says Anthony Palmer, Group Commercial Director at Carrick Wealth, once a year is the bare minimum. In terms of portfolio structure, this almost needs to be a daily review, he says. “That is why we prefer using a discretionary fund manager who is constantly monitoring the portfolio and proactively making tactical tilts to take advantage of opportunities as market conditions change.”

With respect to a client’s personal circumstances, risk profiles and life changes, a quarterly catchup is ideal, adds Palmer.

Whether you engage on a quarterly, monthly or annual basis, the changes you should be exploring with your wealth advisor range from family circumstances to savings, life cover, retirement, estate planning, tax planning to health. Many of these considerations will change dramatically over the course of your life, impacting the strategic asset allocation of your portfolio, explains Palmer.   

Assessing for life stage 

For those living off an investment portfolio, Palmer believes the starting point for any review is an accurate calculation of monthly expenses, coupled with their current tax rate, to fully appreciate what monthly living costs are needed. Then the discussion turns to drawings from the various investment pots, balanced out by the need to ensure that these funds last for the duration of the client’s life.

Particular attention should be paid to the client’s risk capacity and risk tolerance. “Here is where strategic asset allocation is vital. If you get this wrong the consequences can be devastating,” says Palmer, pointing to the right mixture of asset classes, diversification and currency exposure.

The outcome of a similar review discussion with a young professional couple with family commitments would also focus on cutting unnecessary costs and saving. But here a higher risk approach could be taken towards retirement, given the time in hand, while adding lower–risk exposure to cover necessities such as school fees and bond repayments.

Adequate cover is also essential at this stage, explains Palmer. “Life insurance to pay off a bond is critical, income protection if you can’t work but are still alive and dread disease/critical illness cover, which provides a shock absorber if something goes wrong.” 

Hot topics 

During any financial review delving into two topics is essential: How to ensure the utmost tax efficiency in your portfolio and your ideal offshore exposure.

Tax efficiency is about more than just your annual tax return; it spans tax on your contributions, growth, drawdown and on death, explains Palmer. “All of this needs to be understood as there are multiple options available, all with their pros and cons. This is why spending time to slowly walk our clients through the various options is an important part of the Carrick Wealth client-advisor partnership,” he says.

Similarly, getting the right balance when it comes to offshore holdings is key – bearing in mind the unique circumstances of each client. For individuals who have their business and primary residence in South Africa, for example, Palmer recommends as much as 75% of liquid assets be shifted offshore as long as Rand denominated liabilities can be matched with Rand assets.  

“If that is too aggressive then I usually recommend 50%,” he says. “My logic is that if the rand weakens then you are really happy that you have 50% of your assets offshore. If the rand strengthens then you are equally happy, since the country in which you live is in better shape and your business and property should be more secure. Many people spend way too much time and energy obsessing about currency fluctuations. Diversification takes away this stress.”

Having an experienced wealth manager in your corner with whom you can share ideas, explore innovative approaches and fine-tune the building blocks of your portfolio is essential. It keeps your goals front of mind and ensures that you can focus on living your life, knowing you are organized and have a strong financial plan that has been implemented and is monitored by professionals.