How to review
your investment portfolio properly

An investment portfolio should not be left to run indefinitely without review.

Markets change, investments rise and fall at different rates, tax rules evolve and your own financial circumstances may look very different from when the portfolio was first established.

A regular review can help establish whether your investments remain suitable, whether the risks are still acceptable and whether you are receiving reasonable value from your wealth manager.

This does not mean reacting to every market movement or selling every investment that has recently performed poorly. A good investment review looks beyond short-term returns and asks whether the portfolio remains aligned with the job it was created to do.

You can carry out a useful initial assessment relatively quickly by focusing on a small number of important questions. Where the answers reveal concerns, a more detailed professional review may be appropriate.

Start by Defining the Purpose of Your Investment Portfolio

Before examining investment performance, remind yourself what the money is intended to achieve.

The portfolio might be designed to:

• fund retirement;
• produce a regular income;
• provide long-term capital growth;
• meet future school or university fees;
• preserve family wealth;
• fund a property purchase;
• provide money for future gifts;
• meet a future Inheritance Tax liability; or
• maintain access to capital while protecting it from inflation.

Without a clear objective, it is difficult to decide whether the portfolio is appropriate.

An investment strategy intended to fund spending within three years should look very different from one designed to provide growth over 20 years. Similarly, a portfolio intended to generate income may not be judged solely by how much its capital value has increased.

Start by asking what the money is for, when you might need it and how much you are likely to need. Consider whether you require income, growth or a combination of both, and whether your objectives have changed. It is also important to consider what would happen if the portfolio fell significantly shortly before you needed the money.

Your answers provide the framework for everything else in the review.

Review How Your Financial Circumstances Have Changed

An investment strategy that was suitable five years ago may no longer reflect your life today.

Relevant changes might include approaching or entering retirement, selling a business, receiving an inheritance, getting married or divorced, having children or grandchildren, paying off a mortgage, changes in income or employment, deteriorating health, moving abroad, taking on new financial responsibilities, or changes in your attitude towards investment losses.

Your ability to tolerate risk can also change independently of your willingness to take it.

For example, you may still feel comfortable with market volatility but have less capacity to absorb losses because you now rely on the portfolio for retirement income.

A proper review should therefore reconsider both your attitude to risk and your financial capacity for loss.

Calculate the Total Value of Your Investment Portfolio

Begin by gathering the latest valuations for every investment account.

These might include:

• individual savings accounts;
• general investment accounts;
• pensions;
• investment bonds;
• trusts;
• workplace share schemes;
• directly held shares;
• investment properties;
• cash held for investment purposes;
• structured products;
• private-company investments; and
• overseas holdings.

Do not assess each account in isolation.

You may hold several apparently diversified portfolios that contain many of the same companies, sectors or markets. Looking at your wealth as one combined portfolio can reveal risks that are not obvious from an individual statement.

Where possible, prepare a simple summary showing the current value, the original investment or contributions, any withdrawals made, income received, as well as the type of account, the investment strategy, the annual cost, and any restrictions on access.

This creates a clearer starting point for the review.

How to Measure Investment Portfolio Performance

Investment performance is important, but it needs to be measured correctly.

A single year can be misleading. Even a well-managed portfolio may experience periods of negative returns, while a poorly diversified portfolio can enjoy short bursts of exceptional performance.

Review performance over several periods, such as one year, three years, five years, but also since the portfolio began; and since the current strategy was introduced.

The figures should ideally show returns after investment-management, fund and platform costs.

Where you have made contributions and withdrawals, a straightforward comparison between the opening and closing values will not give an accurate result. Ask for performance calculated using a recognised method that accounts for cash flows.

You should also distinguish between:

• capital growth;
• income received;
• total return;
• performance before fees; and
• performance after fees.

The most relevant figure for you is usually the total return after investment costs.

Compare Your Portfolio Against the Right Benchmark

A portfolio’s return means little without a sensible comparison. However, the benchmark must reflect the investments held and the level of risk being taken.

A cautious portfolio containing bonds and cash should not be judged against a global equity index. Equally, a portfolio described as adventurous should not use inflation or a cash deposit rate as its only comparison.

Potential benchmarks include an appropriate market index, a composite of indices reflecting the asset allocation, the portfolio’s stated return objective, inflation plus a specified margin, the average return of comparable funds or portfolios, or the return required by your financial plan.

A suitable benchmark should ideally have been agreed when the portfolio was established. As part of your review, ask your manager what the benchmark is, why it was selected, whether it has changed, whether it reflects the portfolio’s actual risk, whether performance is shown before or after fees, and whether the portfolio has met its objective over an appropriate period.

We have also created a performance comparison tool to help you assess how your portfolio has performed against comparable investment strategies and peer benchmarks. You can use our Performance Comparison tool to explore how your returns compare over different periods.

Persistent underperformance deserves an explanation. It does not automatically mean the manager should be replaced, but the reasons for underperformance should be clear, credible and consistent with the investment strategy.

Review Investment Risk as Well as Returns

Two portfolios can produce the same return while exposing investors to very different levels of risk.

A portfolio that gained 6% with relatively modest fluctuations has delivered a different experience from one that gained 6% after falling by 25% during the year.

Useful risk information may include the largest decline experienced, volatility, the proportion held in equities, exposure to less liquid investments, concentration in individual holdings, currency exposure, credit quality within bond holdings, and performance during difficult market periods.

You do not need to become an investment analyst, but you should understand approximately how much the portfolio could fall in a severe market downturn.

Ask your wealth manager to explain potential losses in pounds as well as percentages.

A 20% fall may sound theoretical. On a £1 million portfolio, it represents £200,000.

The important question is whether you could remain invested and continue with your financial plan after a loss of that size.

Review Your Investment Asset Allocation

Asset allocation describes how a portfolio is divided between broad investment categories such as:

• equities;
• government bonds;
• corporate bonds;
• cash;
• property;
• infrastructure;
• commodities;
• private markets; and
• alternative investments.

This division often has a greater influence on the portfolio’s overall behaviour than the selection of individual funds or shares.

Compare the current allocation with the original strategic allocation.

Strong performance by one area can cause it to become a much larger part of the portfolio. For example, an intended 60% equity allocation might gradually rise to 70% or more following strong stock-market performance.

This is known as portfolio drift.

The result may be a portfolio carrying more risk than originally intended. Rebalancing involves selling some assets that have risen and adding to areas that have become underrepresented.

Rebalancing should not be automatic in every circumstance. Tax, transaction costs and changes to your objectives need to be considered. Nevertheless, significant drift should be identified and addressed.

How Diversified Is Your Investment Portfolio?

Owning a large number of funds does not necessarily mean a portfolio is well diversified.

Several funds may hold the same major companies. A collection of global equity funds could therefore create substantial overlap while giving the impression that risk has been widely spread.

Too many funds can also make the portfolio difficult to understand and increase costs without adding meaningful diversification. Vanguard notes that holding multiple funds can result in duplicated underlying investments rather than greater diversification.

When reviewing diversification, look across countries and regions, industries, company sizes, investment styles, currencies, bond issuers, credit ratings, fund-management groups and individual companies. Pay particular attention to unusually large positions.

Concentration may arise from shares retained after selling a business, employer shares, inherited investments, one particularly successful fund, a preference for UK companies, heavy exposure to technology businesses, multiple funds following similar strategies, or property forming a large proportion of total wealth.

Concentration is not always inappropriate, but you should understand why it exists and how the portfolio would be affected if that particular investment performed badly.

Review Investments You Don’t Fully Understand

You should be able to explain, in broad terms, what each significant investment is intended to contribute.

You do not need to understand every company held inside a fund. However, you should know whether an investment is intended to provide growth, income, diversification, inflation protection or capital preservation.

Be cautious where the portfolio contains structured products, highly leveraged funds, unlisted investments, private equity, specialist tax-driven investments, complex derivatives, high-yield bonds, cryptocurrency, illiquid property funds, or investments with early-exit penalties. Higher-return claims generally involve higher risk. MoneyHelper warns that high-risk products can result in investors losing all of the capital committed and, in some cases, more.

Ask yourself why you hold each investment, how it works, what the main risks are, how easily it can be sold, what it costs, what circumstances could cause a permanent loss, whether it is protected by the Financial Services Compensation Scheme, and what percentage of your overall wealth it represents.

An investment should not remain in the portfolio merely because it is difficult to explain or inconvenient to sell.

Review cash holdings within your portfolio

Cash can play several legitimate roles in an investment portfolio.

It may be held for planned withdrawals, tax liabilities, emergency spending, forthcoming investment opportunities, portfolio rebalancing, or reducing short-term volatility.

However, a persistently large cash balance may reduce long-term returns, particularly where the portfolio manager charges a percentage-based investment-management fee on money that is not actively invested.

Ask:

1. How much cash is held?

2. Why is it being held?

3. What interest rate is being earned?

4. Is an investment-management fee charged on it?

5. How long has the balance remained at this level?

6. Is the cash needed for planned expenditure?

7. Could some of it be held more efficiently elsewhere?

Cash should not be criticised automatically. Its purpose and cost should simply be transparent.

Calculate the Total Cost of Your Investment Portfolio

Investment charges can include financial advice, discretionary investment management, platform or custody, underlying fund charges, model portfolio fees, dealing costs, foreign-exchange margins, performance fees, administration charges, and VAT where applicable.

Request the total annual cost in both percentage and monetary terms.

For example, a total charge of 1.5% costs £1,500 a year on £100,000, £7,500 a year on £500,000, £15,000 a year on £1 million, and £30,000 a year on £2 million.

The fee should then be compared with the service received.

The FCA’s Consumer Duty requires regulated firms to consider whether the price paid is reasonable in relation to the benefits provided. This does not mean that the cheapest service will always offer the best value, but firms should be able to demonstrate why their charges are justified.

Ask whether:

1. Lower-cost versions of the same funds are available;

2. Percentage charges reduce at higher asset levels;

3. Any fees are duplicated;

4. The portfolio contains unnecessary layers of funds;

5. Active management is being used where a cheaper tracker might achieve a similar objective;

6. You are paying for ongoing advice; and

7. The promised service has actually been delivered.

Review the advice and service you receive from your wealth manager

An investment review should assess the wealth manager as well as the investments.

Where you pay an ongoing advice fee, establish what the service agreement promises.

Ongoing advice services commonly include suitability reviews and may also include performance reviews, arranging transactions and overseeing the relationship with a discretionary investment manager.

Consider:

• How often does the adviser contact you?
• Are meetings substantive or largely administrative?
• Is your financial plan updated?
• Are changes in your circumstances discussed?
• Is investment performance explained clearly?
• Are costs disclosed properly?
• Do you receive personalised recommendations?
• Are tax allowances considered?
• Are agreed actions completed?
• Can you contact the adviser when needed?
• Is the same adviser still responsible for your affairs?
• Do you understand what value the service adds?

A portfolio that performs adequately may still provide poor value if you pay for planning and advice that is never delivered.

Conversely, a period of disappointing investment performance does not necessarily mean the overall service lacks value where the adviser has provided sound planning, controlled risk and helped you avoid damaging decisions.

Review the Tax Efficiency of Your Investments

Investment performance should be considered after tax as well as after charges.

Review whether you are making appropriate use of individual savings accounts, pensions, Capital Gains Tax exemptions, dividend allowances, income-tax allowances, investment losses, transfers between spouses or civil partners, tax-efficient withdrawals, and specialist investment reliefs where suitable.

Tax should not drive every investment decision. Selling a sound investment purely to use an allowance may not be sensible if the transaction costs or loss of market exposure outweigh the benefit.

However, holding taxable investments while leaving appropriate tax wrappers unused may lead to unnecessary tax.

Also check whether your wealth manager coordinates tax planning across all accounts, rather than considering each portfolio independently.

Consider the Impact of Inflation on Your Investments

A portfolio can increase in value while still losing purchasing power.

If the portfolio rises by 3% while inflation is 4%, its real value has fallen before charges and tax.

This is particularly important where the objective is capital preservation or retirement income.

Ask whether performance is shown in nominal terms, after inflation, after fees, after withdrawals, and after tax where relevant.

A cash-heavy or very cautious portfolio may appear stable but struggle to maintain its real value over long periods.

The investment strategy should balance the risk of short-term market losses against the long-term risk of inflation eroding your wealth.

Review Your Investment Income and Withdrawals

Where the portfolio provides regular income, assess whether the withdrawal level remains sustainable.

Consider the amount withdrawn, whether withdrawals have increased with inflation, the income generated naturally by the portfolio, whether investments are being sold to fund spending, the effect of market falls, the amount held in cash, expected future expenditure, and the length of time the portfolio may need to last.

Selling investments after significant market falls can accelerate the depletion of a portfolio. This is sometimes referred to as sequencing risk.

A financial plan should test how the portfolio might cope with weak investment returns, high inflation, an extended retirement, unexpected care costs, large one-off spending, and changes in taxation.

MoneyHelper recommends regularly reviewing both retirement investments and the amount being withdrawn, with at least annual reviews suggested for people investing during retirement.

Avoid Chasing Investment Winners and Selling Losers

One of the most common review mistakes is selling whatever has performed poorly and buying whatever has recently performed well.

This can result in repeatedly buying investments after prices have risen and selling after they have fallen.

Underperformance may justify action where the investment process has changed, the fund manager has left, costs have increased, the investment no longer performs its intended role, risk has become excessive, performance has been persistently weak against an appropriate benchmark, or a better alternative is available.

However, short-term underperformance may simply reflect the investment style being temporarily out of favour.

Similarly, an investment that has performed strongly should not automatically be retained. Its valuation may now be high, or its position may have grown large enough to distort the portfolio.

The review should focus on whether each holding remains suitable for the future, not whether it has recently made or lost money.

Check for Unexplained Changes to Your Portfolio

Compare the current portfolio with the one agreed at your previous review.

Identify:

• new funds;
• investments that have been removed;
• substantial changes in asset allocation;
• increased cash;
• changes in fund manager;
• changes to benchmarks;
• increased charges;
• alterations to the risk rating; and
• changes in the income produced.

Ask why each material change was made.

Where a discretionary manager controls the portfolio, it will not normally seek permission for every transaction. Nevertheless, it should be able to explain the overall strategy and significant decisions.

Frequent changes are not necessarily evidence of active or skilful management. They may increase costs and make it harder to assess whether the strategy is consistent.

Has Your Investment Portfolio Become Too Complicated?

Investment portfolios often accumulate complexity over time.

New advisers, tax wrappers, inheritances, business sales and product recommendations can result in numerous accounts and overlapping funds.

Complexity may be justified where it produces a clear benefit. More often, however, it can create duplicated investments, higher charges, confusing reporting, additional administrative work, tax complications, difficulty managing withdrawals and uncertainty over the overall level of risk.

Ask whether the portfolio could be simplified without sacrificing diversification, tax efficiency or valuable product benefits.

Consolidation is not always appropriate. Older pensions and investment products may contain guarantees, protected rights or favourable terms that would be lost on transfer.

Simplification should therefore follow a proper comparison of the benefits, costs and potential drawbacks, rather than being treated as an objective in itself.

Use a simple investment-review scorecard

An initial review can be carried out by scoring each of the following areas as green, amber or red.

Area	Green	Amber	Red
Objectives	The portfolio has a clear purpose and remains aligned with it.	The portfolio has a clear purpose and remains aligned with it.	The portfolio has a clear purpose and remains aligned with it.
Risk	The risk level is understood and remains affordable	The portfolio may have drifted or circumstances have changed.	Potential losses could seriously damage your financial position.
Performance	Returns are reasonable after costs and relative to an appropriate benchmark.	Performance is mixed or explanations are unclear.	Persistent, unexplained underperformance after fees.
Diversification	Risk is spread sensibly across investments and markets.	There is some duplication or concentration.	A small number of holdings could determine the overall outcome.
Costs	Total costs are clear and appear proportionate to the service.	Some charges are unclear or relatively high.	Costs cannot be established, are duplicated or appear unjustified.
Tax	Available wrappers and allowances are being considered.	Some opportunities may have been missed.	The structure appears to create unnecessary tax.
Service	Regular, personalised advice and clear reporting are provided.	Contact is limited or the value is difficult to identify.	You are paying for an ongoing service that is not being delivered.

Several amber ratings or any serious red rating may justify a more detailed review or a second opinion.

Questions to Ask Your Wealth Manager During a Portfolio Review

A productive review meeting should provide clear answers to questions such as:

1. What is the portfolio intended to achieve?

2. Is the objective still realistic?

3. What level of loss should I expect in a severe downturn?

4. Has the portfolio’s risk changed?

5. What was the return after all investment charges?

6. What is the correct benchmark?

7. Why has the portfolio outperformed or underperformed?

8. Which holdings made the greatest positive and negative contributions?

9. Has the asset allocation drifted?

10. Are any investments duplicated?

11. What are my largest company, sector and country exposures?

12. How much cash is held and why?

13. What is the total annual cost in pounds?

14. What ongoing service am I receiving?

15. Are any lower-cost alternatives available?

16. Are tax allowances being used effectively?

17. Are my withdrawals sustainable?

18. What changes are recommended and why?

19. What would happen if no changes were made?

20. Are there exit fees, tax consequences or other barriers to changing provider?

The answers should be understandable without specialist investment knowledge.

When Should You Get a Second Opinion on Your Investments?

You might consider an independent review if performance has been persistently disappointing, costs are unclear, your adviser has changed repeatedly, or your financial circumstances have altered significantly. It may also be worth reviewing your arrangements if the portfolio appears excessively complicated, you do not understand the investments, there are large cash balances without a clear explanation, or the level of risk feels higher than expected.

An independent review can be particularly useful if you are approaching retirement, have received an inheritance or sold a business, communication with your adviser is poor, or you are considering changing wealth manager.

A second opinion does not commit you to moving.

It may confirm that your existing arrangements are suitable, identify areas that could be improved with your current provider, or show that another firm would be better placed to help.

Comparing a new wealth manager

Do not compare firms on recent performance alone.

Ask prospective wealth managers to explain how they would define your objectives, their financial-planning process, their investment philosophy and the expected level of risk. You should also understand how portfolios are constructed, whether investment management is active, passive or a combination of both, and what the complete charging structure looks like.

It is also important to ask about the proposed benchmark, how performance is reported, who will look after you, how often reviews take place, how tax planning is coordinated and what support is provided during difficult markets.

You should compare equivalent services.

A low-cost investment-only proposition is not directly comparable with a service that combines investment management, retirement planning, tax coordination and estate planning.

The right firm should be able to explain clearly what you will receive and how its service supports your wider financial objectives.

An investment review is about suitability, not activity

A good review does not need to produce a long list of transactions.

Sometimes the correct outcome is to leave the portfolio broadly unchanged.

The purpose is to establish whether your objectives remain clear, whether the strategy still supports them, whether the level of risk is appropriate, and whether the investments are properly diversified. It should also consider whether performance is reasonable, whether costs represent fair value, whether tax is being considered and whether the agreed service is being delivered.

Regulated suitability assessments should consider whether an investment should be bought, held or sold rather than assuming that action must always be taken.

The most valuable result may therefore be greater confidence that the existing arrangements remain suitable — or clear evidence that they do not.

Findawealthmanager.com helps individuals compare wealth managers and obtain a second opinion on their existing investment arrangements. Our matching service is free to use and there is no obligation to proceed with any firm.