2019 was a year marked by uncertainty and volatility in the investment markets. So, when it comes to reviewing your portfolio’s performance, it’s important to keep some things in mind.
There were numerous factors influencing markets last year, many of which would have been impossible to predict. In the UK, Brexit continued to be uncertain, with a new Prime Minister and a General Election taking place over the course of the year. Trade tensions between the US and China have a far-reaching impact, highlighting how events taking place across the Atlantic can still affect European businesses and prospects.
But those that stuck to their investment plans, could still have come out on top, despite the highs and lows.
Take the FTSE 100, for example.
On Wednesday 2nd January 2019, the FTSE 100 price was 6,734.23. A year later, on Thursday 2nd January it had reached 7,704.3. Whilst volatile periods where values fell may have made some investors nervous, those that stuck to investment plans would have benefited overall. The figures demonstrate why it’s important to look at overall trends rather than the day-to-day ups and downs investors experience.
So, whether you’re pleased with your portfolio’s performance in 2020 or disappointed, there are some things to keep in mind as you review it.
1. Your long-term goals should remain centre stage
Investment volatility can make it easy to focus on the short term and those temporary peaks and troughs. But you shouldn’t invest with a short-term goal. As a result, your long-term plans (those that are at least five years away) should be the focus of your investment portfolio. Whether your goal is to create a nest egg for early retirement or to leave something behind for grandchildren, reviewing what they are and whether you’re on track is important.
2. Volatility is to be expected
Volatility is a part of investing. Over the course of a year the value of your portfolio will rise and fall, sometimes dramatically. It can be daunting to see the value of your investments plummet, but it’s not something that can be avoided. You may be tempted to sell investments when values fall, as you don’t want them to fall any further. However, it’s important to remember that values falling is a paper loss only until you decide to sell, when the reduced value is locked in.
3. Look at the bigger picture
Rather than looking at short-term volatility, it pays to look at the bigger picture. Over the long term, investments will usually deliver returns that allow you to grow your wealth. Looking at a twelve-month snapshot of your investment portfolio may show investments have underperformed but look back over the last five or ten years, and you’ll hopefully be on track.
4. Review your risk profile
All investments come with some level of risk, but you can choose how much risk you take. This should be tied to your overall financial position and attitude. When reviewing your portfolio’s performance, you should review your investment portfolio too. Differing circumstances and goals may mean that what was once appropriate, no longer is. It’s important that you feel comfortable with the level of risk you’re taking with investments. As a general rule, the greater the risk, the higher the potential returns. But you’re also more likely to see a fall in investment values too.
5. Ensure your portfolio is appropriately diversified
When it comes to investing, diversifying is important. It’s a strategy that allows you to spread your money and, therefore, the risk. By investing in a range of assets and businesses, you stand a better chance of smoothing out the highs and lows. This is because whilst one particular sector may be affected by tariffs, another could be thriving. How your portfolio is diversified should reflect your goals and risk profile.
Looking ahead to 2020
Many of the geopolitical tensions that had an impact in 2019 continue into the new year too. But there are things for investors to be enthusiastic about too.
According to fund managers Schroders: “After a strong 2019, we expect market returns to be more muted in 2020. Under the surface, however, there are opportunities.
“2019 saw a strong performance from the most expensive assets, be it defensive ‘quality’ stocks or European bonds. This means that an anaemic economic environment is reflected in market valuation.
“As data stabilises and the risk of recession is reduced by central bank action, a general theme across our investment teams is that we are seeking to exploit some of the extremes in valuations that this flight to perceived ‘safety’ has created. This means focussing on areas of relative value, be it favouring US bonds over negative-yielding European bonds, international stocks over US equities or cyclical stocks over defensive stocks.”
Remember, your investment plan should be tailored to you and your goals. As a result, investments should be looked at in the context of your wider financial plan, rather than something separate. If you’d like to discuss your investments in 2020 and beyond, please get in touch with us.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Categorised in: Financial planning
This post was written by John Davies