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15 December 2025
The best way to get the UK investing is education not Cash ISA cuts3 min readAuthor
Shares Magazine
The one constant everyone can rely on in life and investing is change. Keeping on top of shifts in your portfolio is crucial if you want to remain positioned to reach your long-term goals.
Before considering your investments, it is probably worth taking stock of your personal situation to consider any material changes. Things like getting married, moving home, or starting a family can have a big impact on finances.
Maybe you’ve had an inheritance which could change your attitude to investment risk and financial security. On the other hand, you could be out of work and looking for a new job. Or you might be planning to retire and draw on your pension, looking to dial down investment risk.
Whatever your personal circumstances it is important to make sure your investments and attitude to risk are always aligned to keep your investing on track.
Why you shouldn’t tinker too much
While it is important to have a good handle on your portfolio, it is worth remembering that investing is a marathon and not a sprint. In other words, investments need time to breathe so don’t get too hung up on short-term performance. As a long-term investor you probably don’t need to check your portfolio more than once a month, unless there is a particularly significant development which affects them.
When you do look at performance, the focus should be on monitoring how your investments are doing relative to expectations. In this regard, one challenge for all investors is that stock prices tend to swing around a lot more than underlying company fundamentals such as cash flow and profits. This can distract investors from what really matters.
To quote Fundsmith founder Terry Smith: “Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns.
“The implication is that stock prices tend to follow the underlying company’s profits,” reasons Smith.
This leads us to a key principle of managing a portfolio, which is to focus on the financial performance of the underlying businesses and ignore short-term price movements.
A similarly detached view is necessary when considering fund investments too. Consider how the fund has performed over the long run and don’t be tempted to exit your investment just because it has struggled over a shorter period.
Why is reinvesting dividends so important?
One of the attractions of owning stocks is that they pay dividends, typically twice a year in the UK with some companies paying special dividends as well. Investment trusts also pay out regular dividends.
It is important to stay on top of your dividend income and, assuming the income is not required, reinvest them.
This involves buying more shares which, in turn, increases future dividend income, which allows more shares to be purchased and so on, creating a virtuous circle. This is how compounding works.
Bonds also pay interest, again typically twice a year, although there are products which pay quarterly and even monthly income.
Investors who regularly squirrel away savings into investment plans will also find cash building up as a result, which needs to be put to work.
Investing excess cash and reinvesting income from stocks, bonds and investment trusts are key parts of portfolio maintenance.
If you are investing in an open-ended fund or exchange-traded fund you will usually have the option of buying an accumulation (acc for short) or income (inc) version. The former will automatically reinvest any income for you while the latter pays income out.
The power of dividend reinvestment
Based on to data from ShareScope, if you had invested £100 in specialist distribution business Diploma at the beginning of this century you would now be sitting on an investment worth £30,500 if you had reinvested your dividends (though this doesn’t factor in fees). Whereas if you just took the income you would have only a little over half as much – £16,400 – in share price gains and dividends.
Did you know?
Most investment platforms offer dividend reinvestment services which allow you to elect to automatically reinvest dividends from UK-listed shares, investment trusts and ETFs for a reduced dealing charge.
What is rebalancing and why does it matter?
One of the advantages of a well-diversified portfolio is that stock prices often diverge with some performing better than others. A similar pattern happens between asset classes, like stocks and bonds.
While this is not important in the short term, over time these moves can change the shape and balance of a portfolio.
Therefore, rebalancing is a good habit to get into to keep your portfolio from getting too out of shape. You may conclude after a review of the portfolio that you are happy with the existing allocations.
On the other hand, if the portfolio has become too reliant on one region, sector or fund, you may decide it is time to make some changes. The good news is that taking some cash from your best performers and deploying it into the parts of the portfolio which have lagged means you are buying low and selling high and can help avoid emotional mistakes driven by market exuberance or panic.
It might seem obvious, but the more transactions you make, the more costs you incur, which over time can add up and impact performance. Keeping costs low is an important aspect of successful investing so rebalancing is probably something to consider at most once a year.
Should I sell poor performers?
Selling is one of the hardest disciplines to get right in investing simply because whether we are talking about individual shares, sectors, regions or funds and ETFs, sentiment tends to drive short-term performance.
A useful starting point is to check the original investment case and reasons you bought are still intact. For individual shares this means assessing how the business is performing relative to expectations.
If a business is not performing, does management have a credible plan to improve the situation? Maybe the company has had a change of leadership, or the strategy has shifted in a different direction.
For funds and trusts, ensure there hasn’t been a change in fund manager or strategy, and if there has, consider whether it’s still fit for purpose. All funds go through bad patches, so try to figure out if that is because the strategy is out of favour or something more serious.
It may be worth considering replacing serially underperforming active funds with cheaper tracker funds.
Reviewing a portfolio is also a good time to consider new investment ideas, whether that means getting exposure to emerging trends, different sectors or other asset classes such as gold or property.
It is important to consider an investment’s diversification benefits as well as its return potential. This helps to maintain a balanced portfolio and ensure a lower variability of returns.
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Martin Gamble: Shares and Markets Writer
Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.
Martin graduated from the University of Kent in...
