Set but don't forget

Martin HawesMartin Hawes
Chair, Summer Investment Committee
March 2019

Regular readers of Summer’s investor education will know that a key part of investing is getting the right investment mix. This is called asset allocation and simply involves having the right proportion of shares, property, fixed interest and cash in your portfolio or fund.

Asset allocation sits at the core of any investment strategy – get this right and you have a lot of the job done.

However, I am no fan of set-and-forget. The idea that you can simply set your asset allocation or go into a fund with the right degree of risk is quite wrong.

Investment needs a much more active approach than that. Things change and you have to adapt to those changes.

There are three things that I consider may call for a change to your asset allocation: first, you may change to invest more or less heavily in a particular asset class. These are tactical moves and I have written about them previously.

Quite simply, a particular market may appear more attractive in which case you increase the amount that you had allocated to it. On the other hand, a market may look very expensive, in which case you could decide to reduce the amount that you have in it so, if it falls, you take a smaller hit.

Note that these kinds of moves are about either improving returns or reducing risk. They can be very fruitful for investors but do require a lot of study and knowledge of the markets.

Second, the investment environment may change. An obvious example of this currently is the Tax Working Group’s (TWG) report last month which, among other things, recommends a comprehensive Capital Gains Tax (CGT). Taxation affects investment and I know many people who have started to think about whether they should change their investments.

I would always urge caution with such change and most certainly would do nothing yet in the case of the TWG report: there is a lot of water to flow under the bridge before this country has a CGT. 

Nevertheless, this is something which requires continuous study – it may be that some permutation of the report’s recommendations is adopted in the future which could require a change to your investment mix.

Third, your situation may change. This could be any number of things:

  • Your investment goals change
  • You get closer to retirement (or retire)
  • You lose your job
  • You become uneasy with volatility

In any of these kinds of circumstances (and many more), you need to look at what you have and make a change if the investment mix is no longer appropriate. In particular, think about whether you may want your money out of the portfolio earlier or later than you had originally planned. Any major life change ought to trigger consideration of changes to your investments and any such considerations will start by looking at your investment mix.

Your money is your money and you need to watch over it. That will mean being open and ready to make changes whether that is to try to enhance performance or because things have changed.



You might like to discuss the views in this article with your Forsyth Barr Authorised Financial Adviser. Please call your Adviser directly or toll free on 0800 11 55 66.

If you are interested in other investor education insights from Martin visit the Media Investor Education page.

Martin Hawes is an Authorised Financial Adviser. This is not a recommendation to buy or sell any financial product and does not take your personal circumstances into account. All opinions reflect our judgement on the date of communication and may change without notice. Past performance is not a reliable guide to future performance. We recommend you take financial advice before making investment decisions. We have prepared this web page in good faith based on information obtained from other sources, but we do not guarantee the accuracy of that information. We do not make any representation or warranty (express or implied) that this web page is accurate, complete, or current and to the maximum extent permitted by law disclaim any liability for loss which may be incurred by any person relying on this web page.