Strategic Investment Plan – Time To Release Your Investments

With the strong performance from the equity market over the last few years, Now may be a good time to rebalance your portfolio, however it is important to remember that this should tie in with your long term investment strategy and not an attempt to time the market. “Investors should not extrapolate the outstanding performance of over 40% in the last year to future returns, especially with rising long term interest rates locally and internationally, the market may run into significant head wind in the short term. Even so the market does not look extremely overpriced.

But rather to ensure that your portfolio is still aligned to your risk profile and your investment needs. For example, if your ideal portfolio should only hold 60% in equities, you may find that due to the relative out-performance of equities against cash and bonds, the weighting is now sitting at closer to 80%. “You should use the strong market conditions to sell out some equities to re-weight your asset classes in line with your long term strategic investment plan”. Alternatively your risk profile may have changed over the last four years. For example if you are five years away from retirement you may want to start taking some profit off the table and gradually liquidating some of your equities by moving into high income yielding investments. “While we are advocating that our clients use this opportunity to re-adjust their portfolios, an investor who has not been exposed to the market and finds they are strategically underweight equities should not increase their exposure now

When rebalancing ones portfolio the various asset classes need to be considered and should be driven by your investment needs as well as your investment vehicle. “While from a capital gain perspective bonds are unlikely to reward investors at current levels, they do still provide a solid income stream, especially if housed in pension vehicles. The same applies to listed property and despite the rough time preference shares have had recently we still view them as an important part of an income portfolio. We believe that the issuers of preference shares will adjust the dividends to compensate for the changes in secondary tax on companies and that the sell off has been overdone, providing a buying opportunity for preference shares. Price weakness has driven the forward yield on a preference share portfolio to around 9.5% which is equivalent to a taxable interest rate of over 16%”.

So investors should also ensure that their portfolios are well diversified. Any well diversified portfolio should contain some exposure to alternative investments that are not correlated to our equity market as well as offshore investments. Currently offshore equities are showing more value than our local market. “This is a great opportunity to reassess your investments, just make sure your decisions are driven by strategic planning rather than short term concerns”.