Keep your finances on track

Published: 31 May 2019

With the final outcome of Brexit still no clearer, you could be tempted to batten down the hatches and wait for more stable times before reviewing your finances.

According to tidying guru Marie Kondo, a fear of the future is one reason people find it hard to tackle the clutter in their lives. But she also believes that taking control today, despite our fears, is key to clarity and helping us live the future we want1 .

So taking a leaf from the Kondo book, perhaps the ongoing political uncertainty should provide added impetus to ensure your portfolio is in good shape for the 2019/20 tax year.

Against what might feel like a difficult backdrop for making investment decisions, there could be a peace of mind in knowing you’re as well placed as possible to withstand whatever might be coming our way.

So where do you begin? What should you be looking for?

Here’s a few questions to ask yourself to help get you started. And it needn’t take long. All you need is an hour or so, and you’ll be on your way.

1. How are you going to get the best from your ISA allowance?

With a new tax year comes another opportunity to make the best of your tax-efficient ISA allowance. At £20,000 for 2019/20, it remains generous, whether you want to put your money in cash, stocks and shares or both. You can find out more about all the different types of ISA and other tax-efficient ways to save on the Money Advice Service website. We offer a Stocks and Shares ISA at Alliance Trust Savings.

2. Do you still have the right balance between cash and investments?

There are risks with both cash and investments, but the risks are different. With cash savings the risk is the interest you receive means they don’t keep pace with rising prices, and with investments it’s that prices go up and down and you could get back less than you put in.

It’s sensible to keep a rainy-day cash fund on hand for emergencies, and to cover your essential outgoings for a period of time you feel comfortable with if your usual sources of income were to dry up for any reason. Beyond that, however, stock-market based investments can offer better potential returns for long-term investors, especially in the current low interest rate environment. However you will be taking more risk, as investing in stocks and shares is inherently more risky than cash.

3. Do you want to invest lump sums or regular instalments this year?

Drip-feeding money into investments - monthly say - has what’s known as the ‘pound-cost averaging’ effect. This is what happens when your money buys investments at different times and prices rather than at one price. It doesn’t remove the risk of investment prices going down as well as up or the potential for you to get back less than you put in, but it can act to lessen the impact of those downs and ups in investment prices on your returns over time.

On the other hand, investing a lump sum (such as a bonus or inheritance) means you can potentially start earning more income from your investments sooner than would otherwise be the case. This may suit you if income is a priority for you, or you want to maximise your potential to benefit from compounding by reinvesting it. Compounding is the snowballing effect that can happen as the size of your pot increases and you have more to benefit from any future growth.

What’s best for you ultimately comes down to personal preferences, circumstances and objectives. The answer in many cases might well be a bit of both.

4. Is your investment portfolio still on track?

Diversification is one of the most important concepts in long-term investing. Spreading your money across and within different asset classes - such as cash, equities, property and bonds - is essential in managing risk and helping your investments perform in varying market conditions.

If you’ve had an investment portfolio for a while, don’t forget to check that it remains in line with your preferred asset allocation and that it’s still as well-diversified as you’d like.

Your preferred asset allocation was likely based on your original investment goals, needs, circumstances and risk appetite. All of these can change, while your portfolio can similarly drift away from your asset allocation over time. You may need to rebalance your investments to keep things on track, by selling some and buying others.

5. Are you still happy you’re getting value for the charges you pay?

Investment charges have come down in recent years and are increasingly competitive2. But excessive charges can impact long-term returns, so it’s worth checking that you’re comfortable with what you’re paying for your investments.

Fund providers now have to disclose expected (ex-ante) costs and charges pre-sale, and details of the actual costs and charges provided post-sale (ex-post), under new rules introduced in January 2018 as part of the second Market in Financial Instruments Directive (MiFID II). These show charges (including one-off, ongoing and transaction costs) on an aggregated basis and as a cash amount and a percentage figure, along with an illustration of their projected impact on returns.

As an investment service provider Alliance Trust Savings now sends you an annual consolidated statement of the costs and charges for your investments through us. You’ll receive your first one shortly if you haven’t already and you can use it as a jumping off point to review whether you’re happy you’re getting value for the charges you pay.

For more on this read New disclosures: How can you benefit?

Important information

This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.

Laws and tax rules may change in the future without notice.

Please be aware that the value of investments can fall as well as rise so you could get back less than you invest. Past performance is not a guide to future performance.

1 Marie Kondo, The life-changing magic of tidying up: the Japanese art of decluttering and organising
2 Morningstar - Fund Fees Drop 20% But Investors Still Flock to Passives - 23 October 2018


Considering a change? We offer a wide range of investments.

Use our Morningstar tools to research your options. And visit our Investing Hub for ideas. From the most popular funds to our specialist Investment Trust magazine Taking Stock.

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Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.