“Simplicity is the ultimate sophistication.” (Leonardo da Vinci)
Few people deliberately set out to build a complicated investment portfolio. It tends to happen over a lifetime.
A retirement fund is left behind after changing jobs. You open a tax-free savings account. A property does particularly well. There may be shares inherited from your parents and an investment made years ago on a buddy’s recommendation.
None of these decisions looked especially troublesome at the time. But years later, you may own a substantial collection of assets without ever having considered whether they still belong together.
Good investments can make a bad combination
Most of us judge an investment on its own merits. Is the fund performing well? Has the property increased in value? Has the share price risen? Those are reasonable questions, but they tell only part of the story. An attractive new fund might invest in many of the same companies already held elsewhere. A successful shareholding can grow to represent far more of your wealth than originally intended.
This is how someone who considers themselves cautious and sensible can end up with a risky portfolio. Nothing necessarily went wrong, the portfolio simply evolved without you noticing.
We become attached to what we own
Tidying up sounds straightforward until human behaviour enters the picture. Investments that have been around for years tend to acquire a certain permanence. If they aren’t causing an obvious problem, there’s little urgency to review them. The original reason for buying them may have disappeared long ago, but inertia is powerful.
Investments that have disappointed us are difficult for another reason. Selling turns a paper loss into a real one. Holding on allows us to believe that the investment might recover, which helps explain why people sometimes retain poor performers for far longer than they intended.
Winners bring their own complications. If a particular share or fund has delivered handsomely for years, reducing your position in it can feel strangely illogical. Yet its very success may have left too much of your wealth dependent on one company, sector or market.
Money isn’t always the deciding factor either. An inherited shareholding, family property or interest in a business can carry history and sentiment. Of course, there may be excellent reasons for keeping it. The important thing is to recognise the difference between actively choosing to retain an asset and never having questioned it.
Then life changes
Portfolio weaknesses tend to remain hidden while circumstances remain unchanged. But retirement often exposes them. For decades, the main objective may have been to accumulate capital. Now some of that capital must produce income. Liquidity becomes more important, and a sharp market fall is harder to shrug off when there are fewer earning years available to rebuild what’s been lost.
Suddenly, the individual investment statements are less useful than the combined picture. You may own five funds and discover that several hold many of the same companies. Two fund managers may favour similar markets. Different advisers may each be doing a perfectly competent job, but only within the slice of the portfolio they can see.
Other questions start to matter too. How much is invested in equities? Is there more offshore exposure than intended? Where are the largest concentrations? How easily could capital be accessed? What level of income could the portfolio reasonably support? Until everything is brought together, some of those questions will be impossible to answer.
Start with a blank sheet of paper
There’s no need to respond to complexity with a wholesale clean-out. In fact, doing so could be expensive. Some older investments have guarantees worth preserving. Selling assets with large, accumulated gains may create tax consequences. A private business or property cannot necessarily be sold neatly or quickly, and family assets may deserve different treatment from an ordinary investment fund.
A better starting point is simply to map what is there. Then look at each significant holding in the context of everything else. Why do I own this? What does it contribute? What risk comes with it? Do I already have another investment doing much the same job?
One question
One question cuts straight to the chase: If I had the money in cash today, would I buy this investment again? A “no” doesn’t mean it should immediately be sold. Tax, timing, and other considerations still matter. But it is a useful signal that an investment deserves another look.
For people with substantial wealth, some complexity is unavoidable. Businesses, property, offshore assets, and retirement investments do not fit neatly into a single structure, nor should they have to. The aim is not to own fewer things simply for the sake of it, it’s to know why you own them.
Please contact us if you’d like to review your portfolio, including every asset that you own.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
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