There is no single investment solution that suits everyone. What will work for you depends on your own objectives, time-frame and risk appetite. The same applies to any financial planning; whether you are looking at investments, tax planning, pensions or estate planning, your approach should be tailored for your specific set of circumstances.

The price you pay for an ill-fitting investment portfolio could be costly. You could find that your money is not working as hard as you would like it to, or it is difficult to access when you need it. Even worse, it could be eaten away.

The good news is that with professional guidance you can find the perfect fit for you.

Identifying your risk appetite

First, you must be clear about how much risk you are willing to take with your money. In the current low-interest rate climate – where rates hover near zero while the cost of living continues to creep upward – some risk is necessary to achieve returns that will outpace inflation. But your investment decisions shouldn’t keep you awake at night, so it is essential to pinpoint the right risk/reward balance for you.

It is extremely difficult to effectively assess your own tolerance for risk. An experienced financial professional is best placed to ask the right questions and use the appropriate tools to create a clear and objective risk profile for you.

Remember that without some element of risk, your returns could be eroded by inflation over the longer term. An adviser can present options to help control risk within your defined boundaries, such as through a carefully structured and diversified portfolio. You could also choose to stagger the timing of investments in riskier assets to reduce exposure to market volatility.

Defining your time horizon

Experts say investing is a marathon, not a sprint – for a good reason. The longer you have to invest, the more risk you can generally afford to take. With time, you can ride out market turbulence and also benefit from compound returns: interest made on interest. So if you have the means and the patience to invest in the long term, you are more likely to enjoy better returns.

Understanding your time horizon is also the key to future-proofing your investments, so you can get hold of them when you need to. In any case, you never know when your plans may change unexpectedly, so it is important to hold some liquid assets that can be sold to release capital if needed.

Reducing risk through diversification

The higher your concentration in one particular area, the higher the risk. Investments skewed towards UK-based assets, for example, are more vulnerable to downturns in the British market.

Without some element of risk, your returns could be eroded by inflation

A good portfolio minimises risk by spreading investments across multiple, unrelated areas through diversification, by asset type – cash, fixed income (government and corporate bonds), shares and ‘real assets’ such as property – as well as by geographic region and market sector.

Be mindful that many private banks and wealth managers often allocate a significant part of their investment portfolios to their own in-house funds. You can achieve greater diversification by choosing an adviser that has the freedom to spread investments out among several different fund managers, each selected for their expertise in specific market sectors.

The impact of taxation

Finally, you should never underestimate the effect of tax on your investments. Without suitable tax planning in place, you could find that your returns are slashed by taxes that could have been avoided or at least significantly reduced. 

It is important to seek professional advice to ensure that your investments are structured tax efficiently to legitimately maximise the profits made during your lifetime while protecting your future heirs from unnecessary taxation.

Remember that your circumstances and objectives change over time – as can tax rules – so what works for you now may not be suitable in years to come. It is crucial to regularly review how you manage your wealth to make sure it keeps up with your situation, especially at different life stages, such as retirement or when relocating.

All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice. Keep up to date on the financial issues that may affect you on www.blevinsfranks.com.

Kevin Cassar is regional wealth manager, Blevins Franks.