Should I use a model portfolio for my investments?
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I review my investment portfolio with my adviser once a year. It seems to go up and down quite a lot and has suffered quite badly in the last few years. A friend tells me that he is using something he calls a model portfolio that means his investments change regularly to try to get the best returns. Are they a good idea?
Douglas Bridges of Smith & Pinching responds:
With a long-term investment strategy, most portfolios will see values both rise and fall but should ideally still deliver overall growth over a period of years. However, you should review investment portfolios at least annually to ensure that their performance is on track to meet your investment objectives and to check that those objectives haven’t changed.
Reviewing and adjusting your portfolio shouldn’t be a knee-jerk reaction to specific market movements but there are changes that may make more frequent adjustments beneficial. A more frequent review with your current adviser could assist with this, but model portfolios do present a viable alternative.
Model portfolios are typically groups of assets that are managed collectively by portfolio managers. The manager will regularly review and adjust the portfolio, perhaps as often as monthly, with the aim to achieve target growth within agreed parameters. The growth target will often be measured against a benchmark such as the FTSE100.
From what you have said, model portfolios might indeed be suitable for you. There is no guarantee that they will provide better returns than your current portfolio, but the more frequent review and management style could help manage the volatility, which essentially you have identified as your main concern.
While there are costs involved with portfolio management (model or not), they should be outweighed by the improved performance of the portfolio, although this can’t be guaranteed – investments always involve risk. If you decide to consider a model portfolio, please ensure that you get advice about the level of risk that is comfortable for you.
Some advice firms will use third-party model portfolio managers whereas others, such as Smith & Pinching, design their own portfolios in-house for their clients and provide portfolio management as an integral part of their investment service.
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It’s also possible to have a bespoke portfolio that is tailored to suit your specific requirements and more actively managed, but this may be more expensive than a model portfolio.
I suggest you review your investment strategy with an Independent Financial Adviser to ensure that the investment choices you make are suitable for you and keep you on track to achieve your objectives.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk