Investors must review portfolios
One in 10 investors never review their investment portfolios and a quarter only check their investments on an ad hoc basis "when they get around to it".
At a time when portfolio construction is facing severe challenges with unsteady economic conditions, low interest rates and the risk of high inflation, investors are not being as diligent as they should be when picking core assets, according to a study by JPMorgan Asset Management.
When asked what "core holdings" investors have in their portfolios, 15% admitted not having one and preferring a more "scatter gun" approach. A third said their core holding was in cash, and 36% said equities made up less than 40% of their main holding.
David Barron, head of investment trusts at JPMorgan Asset Management, is worried investors are taking for granted the importance of having a carefully selected core investment element, which should be invested to deliver long-term returns and protection against rising inflation.
"Investors are not thinking strategically about their investment holdings, a high number of people chose cash as their core holding but it offers very little, if no, returns currently", he adds.
The percentage invested in core assets depends on the individual. Barron comments: "The balance between the core investments and higher risk satellite investments will be a reflection of these requirements and investors’ attitude to risk. These will change periodically and it is important all elements of their portfolio are considered at least annually."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).