How to maintain a portfolio

Welcome to the final video in AJ Bell’s 'Investing for beginners’ series. My name is Charlene Young and so far in this series, we’ve talked about setting goals, different types of accounts, where you can invest and creating your first portfolio. To round things off, I’ll now run through some handy tips on maintaining your portfolio.

Building a portfolio can be incredibly satisfying - you’ve done a lot of hard work in researching and selecting investments, and you’ve created a plan including the percentage of your portfolio you want in each investment. In essence, you’ve built the car - now you’ve got to keep it running on the road.

Don’t worry, I’m not expecting you to be a qualified mechanic. It’s merely about doing basic maintenance which is no more complicated than filling up the cleaner fluid for your windscreen wipers or changing an inner tube on your bike.

Once a year, it’s worth doing the following two tasks. First, check the investment case for everything in your portfolio. Second, go back to your original asset allocation plan and look at the weightings you wanted in each area. If some parts have moved up or down a lot, you might need to rebalance your portfolio back to the original plan.

Let’s go through each of those tasks one by one, starting with the investment case health check. If you’ve bought shares in an individual company, go through the latest financial results and see if everything is well or not with the business.

You want to look at comments about the strength of trading, what’s happening with a company’s debt or cash position, and take a look at the share price trend to see what the market thinks. If there are a lot of red flags and the company isn’t doing what you expected, it might be time to rethink holding those shares.

A similar approach applies to actively-managed funds or investment trusts. Is the fund manager investing in areas you would expect them to, or have they shifted to new areas to try and make money? The latter tends to be a bad sign.

Take a look at your investments and ask yourself: ‘am I happy holding these today?’. It’s important to remember that some investments might be lagging others in your portfolio and that is perfectly normal.

Don’t sell something simply because the price hasn’t gone up much or at all. Investing requires patience and sometimes good investments go nowhere if the market conditions aren’t in their favour. Hopefully, they will become in fashion soon, although that is never guaranteed.

The next thing to do is consider rebalancing. That involves buying or selling assets in your portfolio to regain and maintain the original desired level of asset allocation.

For example, your original plan might have been to have 40% in a global equities fund, 20% in an emerging markets equity fund, 20% in a strategic bond fund, 10% in a property fund and 10% in a gold tracker fund. Let’s say that during the past year, gold has done very well and property has gone through a bad patch. That’s left your gold fund accounting for 15% of your portfolio and property now stands at 5%.

To rebalance, you would sell a third of the units in the gold tracker fund and use that money to double your position in the property fund, thereby shifting the weightings back to the original 10% for each.

The key thing to remember with rebalancing is not to do it too often, otherwise you’ll rack up lots of dealing costs. Annual might be better than monthly.

It’s also worth remembering that your asset allocation plan is likely to change as you get older. So, you could get the point where the rebalancing exercise helps you align to a new asset allocation plan, rather than always sticking to the original one.

I hope these videos have been useful and we wish you all the best with your investment journey.