Your investments must be suitably diversified so you are not over-exposed to any given asset type, country, sector or stock.

Material wealth can be defined as the abundance of valuable possessions or money. As materialistic as it may seem, most governments, organisations and individuals strive to create wealth.

There are a number of key considerations one should take to ensure that the optimum investment portfolio and objectives are obtained.

Choosing the right tax efficient structure

A tax efficient structure can keep most of your investments in one place and, importantly, provide protection to help you legitimately avoid paying too much tax. You want to ensure that as much of your hard-earned wealth as possible is placed in the most suitable structure to limit your tax liabilities.

It is crucial to take advice from someone who is well-versed in the nuances of both local and cross border taxation systems and how it can impact your wealth.

Integrating tax and investment planning is fundamental to your success.

An appetite for risk

Of course, no risk often means no return. Most of us recognise that for some of our assets, exposure to market movements gives us a better chance of outperforming inflation and producing real returns over the medium to long term.

However, the starting point has to be obtaining a clear and objective assessment of your appetite for risk. Otherwise, the result will be an investment portfolio that is not suitable for you.

There are some very sophisticated ways of evaluating risk appetite, involving psychometric assessments that are easily carried out in a face-to-face meeting with a wealth manager.

Matching investment portfolio to risk profile

Every set of investments can be forecast to display a given amplitude of risk. Low amplitude means less risk but also lower likely returns. A higher amplitude of risk brings greater potential returns. The key is ensuring that investment portfolio matches attitude to risk.

Without such a sound assessment being then matched to an appropriate blend of investments, you could find yourself with a portfolio that is too risky or cautious.

Together with your wealth manager, you need to establish the investment portfolio that suits you best.

Diversification

The next critical component is to ensure that your investments are suitably diversified so you are not over-exposed to any given asset type, country, sector or stock.

By spreading across different asset types and markets, you are giving your portfolio the chance to produce positive returns over time without being vulnerable to any single area or stock under-performing.

This sound investment approach should be extended by going one step further: utilising a ‘multi-manager’ approach, whereby several different fund managers blended together can reduce your reliance on any one investment manager making the right decisions in all market conditions.

Appropriate diversification can significantly reduce exposure to risk.

Review

It is important to review your portfolio regularly to rebalance it. As asset values rise and fall, your portfolio can shift away from the one designed to match your risk profile and objectives.

You may need to make adjustments to re-establish your original weighting, and consider if any of your circumstances have changed and the implications for your portfolio.

Regular re-balancing helps control risk and can have a positive effect on performance.

Ensure your investable assets are structured tax efficiently, your risk profile is assessed objectively and in sync with your investment portfolio, have an appropriate level of diversification and review your portfolio regularly with your wealth manager.

If applied well, the five key principles can give you the peace of mind to sleep at night, while your investments and investment managers work to your requirements.

www.blevinsfranks.com

This article should not be construed as providing any personalised taxation and/or investment advice and all information is based on the company’s understanding of legislation and taxation practice, which is subject to change.

Jean Chapelle is a private client manager at Blevins Franks Financial Management Ltd.