When it comes to investing, it’s often best to create a tailored financial plan and leave investments for the long term without tinkering. However, it can be tempting to make adjustments. Whilst this may be the right decision in some cases, it’s important to weigh up if it’s right for you.
Given the recent market volatility, you certainly wouldn’t be alone in wondering if you should withdraw or change investments. But it’s important to look at your motivations for doing so to understand if it’s right for you.
1. Why do you want to make changes now?
The first thing to think about is why you want to make changes. Is it due to current market conditions? It’s normal to be nervous when investment values fall, or markets experience a period of volatility.
However, you need to keep in mind that short-term volatility is normal, this is why you should only invest with long-term goals in mind. Looking at the bigger picture if you’ve been invested for several years, it’s likely that you’ve benefited from gains too. Keeping this in mind can help put the recent market activity into perspective.
When you first begin investing, the peaks and troughs that will likely be experienced in the short term should be considered. Your portfolio will be stress-tested with these in mind.
2. Have your long-term financial goals changed?
What you want to achieve when investing should be central to the decisions you make. When setting up an investment portfolio, you should have considered what your end goal was. Did you hope to supplement your pension by creating an additional income in retirement in 30 years? Or perhaps you wanted to build a nest egg for your children that they’ll have access to in 10 years?
If your goals have changed, it’s wise to review your investments and wider plans. There may be cases where adjustments are necessary to align investments with goals. But if your goals have remained the same, it’s likely that your portfolio, which was built with these in mind, remains appropriate for you.
3. What is your investment time frame?
Even seasoned investors can worry after experiencing volatility. Keeping your time frame in mind is important throughout the investment process.
As short-term volatility is normal, it’s usually not advised if you have a time frame of fewer than five years because there’s less opportunity to recover from periods of downturn. When you look at investment performance over the long term, you should see an overall increase with the peaks and troughs balancing out. Generally speaking, the longer the investment time frame, the more risk you can afford to take, although the time frame isn’t the only area to consider when building a risk profile.
4. Is your situation different now?
It’s not just goals that affect financial decisions but your situation too. When you made your financial plan areas such as income, savings and existing protection policies would have been considered. In addition to these financial areas, lifestyle ones are factored in too, such as whether you have any dependents.
Whilst it’s often advised to stick to a financial plan that’s set out, there needs to be some flexibility too. If your situation has changed, it’s wise to review the steps you’ve taken to see if they still suit you. This could be after welcoming children, receiving a promotion or receiving additional employee benefits, for example. Some of these areas may affect the investment proposition that is right for you.
5. Has your risk profile changed?
Numerous factors affect your risk profile, and some of these will change throughout the investment period. If this is the case, you may want to review your investments. However, this shouldn’t be done just because values have fallen. It’s important to keep in mind that all investments involve some level of risk, but by choosing an appropriate risk profile, you can match this to your circumstances and goals.
Before you consider changing your investments, please get in touch. We’ll be happy to review your current portfolio in line with your long-term goals to highlight where change may be necessary or advise you to stay the course with your current investment plan.
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.
