In our view, there are five key aspects that you need to address to ensure you obtain the optimum investment portfolio to suit you and your particular situation:-
Tax considerations - choosing the right tax efficient structure
A tax efficient structure – such as a pension plan or ISA in the UK – can keep most of your investments in one place and importantly provide protection to help you legitimately avoid paying too much tax. You want to ensure that as much of your hard-earned wealth as possible is placed in the most suitable structure to limit your tax liabilities.
That was perhaps easier to achieve in the UK where we are accustomed to the local rules, but here in France with a foreign tax system and all the various changes and tax rises over recent years, it is crucial to take advice from someone who is also well-versed in the nuances of the French taxation system and how it can impact your wealth.
Otherwise, you may happen upon an investment portfolio that produces excellent medium to long-term returns, only to see them slashed by French tax and social charges – levies that could have been avoided or at least significantly reduced.
Your appetite for risk
Of course, no risk often means no returns.
And arguably these days, as we witnessed in recent years, even bank accounts carry risk. Putting funds under the mattress is hardly the solution either!
Most of us recognise that for some of our assets, exposure to market movements gives us a better chance of outperforming inflation and producing real returns over the medium to long-term.
However, the starting point has to be to obtain a clear and objective assessment of your appetite for risk. Otherwise the result will be an investment portfolio that is not suitable for you.
These days there are some very sophisticated ways of evaluating your risk appetite, involving a combination of psychometric assessments (easily carried out in a face-to-face meeting with your Blevins Franks Partner or Private Client Manager) and consideration of your other assets and the aims you have for you and your family.
Matching your risk profile to the optimum portfolio
Every set of investments can be forecast to display a given amplitude of risk. Low amplitude, less risk but also lower likely returns. A higher amplitude of risk brings greater potential returns. The key is ensuring your investment portfolio matches your attitude to risk. As surgeons frequently will not operate on their own family due to subjective emotional involvement, neither should you try to decide on your own tolerance to risk – you will benefit from third party professional objective guidance.
Without such a sound assessment being then matched to the optimum blend of investments, you could find yourself with a portfolio that is too risky or too cautious for you.
As sailors will tell you, a glassy sea means no progress whereas a strong wind and choppy waves can be too risky. The ideal scenario is finding the conditions, or in this case, the investment portfolio, that suits you best.
The next critical component is to ensure your investments are suitably diversified to ensure you are not over-exposed to any given asset type, country, sector or stock.
By spreading across different asset types (equities, government bonds, corporate bonds, property, cash) and markets such as the US, UK, Europe and the Far East, you give your portfolio the chance to produce positive returns over time without being vulnerable to any single area or stock under-performing.
This sound investment approach should be extended by one further step. Utilising a 'multi-manager' approach, where several different fund managers are blended together, can reduce your reliance on any one investment manager making the right decisions in all market conditions.
You should choose the right tax efficient structure, but that does not mean within it that you have to put all your eggs in one basket. Diversification done properly can reduce your exposure to risk.
Finally, it is also important to review your portfolio around once a year to re-balance it, which is something that Blevins Franks does automatically as part of our continuing service for clients. As asset values rise and fall, your portfolio can shift away from the one designed to match your risk profile and objectives. We may need to make adjustments to re-establish your original weighting, and also need to consider if any of your circumstances have changed and the implications for your overall portfolio.
Regular re-balancing helps control risk and can have a positive effect on portfolio performance.
So in summary, at Blevins Franks we ensure your assets are put in the right structure to limit potential taxation; objectively assess your appetite for risk and match it to the optimum investment portfolio to suit that risk appetite; diversify across asset types, markets and investment views, and finally, review your portfolio from time to time.
Five key principles which applied well can help you have the peace of mind to sleep at night, while your investments and investment managers work to your requirements.
Any questions? Ask our advisers for help.
All advice received from any Blevins Franks firm is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation and / or investment advice. Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.