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How to effectively streamline your investment portfolio

04 October 2013

Fidelity’s Tom Stevenson offers some quick fixes to help investors extract the maximum amount of value from their portfolios.

By Andrew Baker,

Reporter, FE Trustnet

Conducting a periodic review of your investments is always a sensible idea, and with the tax year reaching its half-way point, now is as good a time as any.

With a great deal of risk falling outside of investors’ control, it makes sense to take charge of whichever aspects of portfolio management you can.

General principles such as understanding your investment goals, taking time to choose the right intermediary and being diligent with fund retention are all areas that can maximise portfolio efficiency.

Portfolio reviews do not have to be a laborious and painful activity, ignored till March when it is too late to make any real difference to the amount of tax due, for example.

ALT_TAG Tom Stevenson (pictured), investment director at Fidelity, says there are many simple ways that investors can streamline their portfolios.

Make the most of your tax allowances

He says that one of the most vital principles of investment is making sure you are receiving all the capital gains or income you are entitled to.

"When putting money away to achieve your financial goals it is important that you keep as much of it as you can by protecting it from the taxman," Stevenson said.

"Investments may produce an income and increase in value, both of which could make you liable for tax if you exceed your annual tax-free allowances. However, if these investments are held inside an ISA, a tax-efficient wrapper, there is no tax on any of the income you receive and no tax due on any capital gains."

"An ISA allows you to save and invest your money without worrying about tax or even having to tell the tax man about your investment," he added.

FE Trustnet
recently highlighted a number of ways investors can make their portfolios more tax efficient.

Invest with the right fund supermarket

Stevenson says that when you are choosing a fund supermarket, it is important to ensure it offers a wide range of funds, as not all of them do.

They differ in tools, guidance and insight offered to investors to help them assess which asset classes and types of funds to invest in.

"Even simple things like being able to pick up the phone to speak to somebody about your investments can make saving easier and more stress-free," Stevenson added.

Don't overpay for your investments

Stevenson says one way investors can keep costs down is by using passively managed funds. They tend to have much lower ongoing charges than their actively managed counterparts; however, all they do is track the index they are investing in.

"Cost and value are important," Stevenson continued.

"Make sure that if you are paying for active investment management then that is what you are getting. If you prefer to invest in a passively managed tracker fund, ensure high active-management fees aren't eating into your investment."

"Many investors pay over the odds for passive investments because they are unaware that similar products are available at a much better price."

One option available to investors is the Vanguard passive range: the group is commonly viewed as one of the best providers in this area of the market.

Through Vanguard funds, investors can gain exposure to all manner of indices, including both equity and bond markets.

For instance, Vanguard FTSE UK All Share Index has a tracking error of just 0.33 per cent over three years and has an OCF of 0.15 per cent.

Put money away every month

Stevenson says investors should not be afraid of drip-feeding their money into markets, because not only does it mean you only have to invest a small amount at a time, it mitigates the risk of market corrections.

"Saving small amounts on a regular basis can help to combat the natural tendency of investors to sell when markets are low and buy when they are high," he explained.

"It is hard to establish the best time to buy and sell shares and funds, so investors who try to time their entry and exit are likely to mis-time their moves in and out of the market. One way investors can avoid the temptation to time the market is to set up a monthly savings plan," he added.

Define your retirement goals

Stevenson says that an investor who calculates their expected retirement income from pension provisions and retirement savings should take steps to avoid any possible short-fall.

"According to research by Opinium for Fidelity, pre-retirees expect their retirement savings (which they estimate at around £13,972 a year) will fall far short of the £21,734 they believe they will need," he explained.

"With a £7,762 a year short-fall between desired and anticipated annual retirement income, now is the time to review your retirement plans."

Consider putting all your pensions in one place

"Having several pension pots can make it difficult to keep track of savings and lead to returns being lower than they should be," Stevenson continued.

He says that by consolidating old or multiple pensions into a single pot, it will be easier to manage and monitor your savings.

Make sure your child's savings are tax-efficient

Junior ISAs share the same tax benefits as adult ISAs and as such offer a credible way to save for a child’s future needs. Stevenson highlights a possible investment scenario where they are very useful.

"Fidelity calculates that by investing £84 a month for 18 years, parents can achieve a lump sum of £25,000, which would cover the cost of an average wedding with some left over," he said.

"Even just £50 a month over the same period could build up a fund worth nearly £15,000, which would make a decent contribution to a house deposit. Under current rules you can invest up to £310 a month into a Junior ISA."

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.