Simple-Yet-Smart Investment Housekeeping

As behavioural economists remind us, investors often have an urge to take decisive action regarding their investment portfolios even though the best course is frequently to do nothing.

This urge to act typically reaches a high point when there is plenty of "noise" in the investment markets with numerous people offering opinions about way which way asset prices may be heading.

Whenever you feel an urge to take decisive action, it can be a time to undertake a little investment housekeeping rather than trying to time the market – attempting to pick the best time to sell or buy. Market-timing often ends in disappointment.

Simple-yet-smart investment housekeeping can involve investors concentrating on factors that are under their control such as their ability to:

Periodically rebalance a portfolio back to its strategic or target asset allocation. This helps instil a disciplined, rational and non-emotional approach to investing. Depending upon the circumstances, rebalancing may involve selling down a portion of a well-performing share portfolio. (See View from the top of the market, Smart Investing, March 30.)
Minimise investment costs. This may include increasing investments in low-cost traditional index funds and/or Exchange Traded Funds (ETFs). In short, high investment costs cut into an investor’s returns.
Manage tax efficiently. This can include not triggering unnecessary capital gains tax (CGT) by excessive trading and, if appropriate, saving more in concessionally-taxed super.
Ensure that the risk level of your portfolio – as reflected in its asset allocation – is within your tolerance to risk.

One of the simplest housekeeping exercises that an investor can take is to get rid of multiple superannuation accounts that often do little apart from adding to costs and complicating investment arrangements.

It can be tougher to keep track of your super when multiple accounts exist. (Of course, there are circumstances when multiple super accounts may suit a particular investor’s strategies.)

The tax office has just issued a reminder to young super members in particular about the costs and complications of duplicated super accounts.

An investor’s ability to consolidate multiple super accounts provides a textbook illustration of how investment housekeeping need not be complex to be effective.

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.

As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider yours and your clients’ circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This website was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.