The obvious questions are, “Why is it necessary to service or review my investment and what should I be checking for?” The simple answer: To ensure that your investment “vehicle” is still roadworthy, so to speak, and running optimally to get you safely to your desired investment destination.
Continuing with the car analogy, if you own a flashy sports car, then an off-road dirt track might not be the right road to travel.
Your journey might have started in a sports car, wind in your hair and tar beneath your wheels, until you unexpectedly end up on a dirt road. So either you need to get back on the tar or switch to a 4x4. The annual review of your investment is much the same.
It’s a time to access whether anything has changed from your original investment plan and, if it has, to either change your plan or find your way back to your original plan.
Sometimes it is the little things that need tweaking, like an oil change or new brake pads, to keep a car safe and running smoothly.
Ignoring the need to replace a small item, for example shot brake pads, could result in a total loss of the car due to its inability to brake and avoid an accident.
Likewise, the annual review should be used to make tweaks to your investment, where necessary, that could save you massively in time.
This includes things like increasing the contributions you make towards your investment, to beat the crippling effects of inflation over time. It’s a small tweak each year, yet if neglected for long enough, the long-term effects of inflation on your investments could be devastating.
The relationship between the driver (investor) and dealership (advisor) is important as both have a responsibility towards each other. The driver chooses a car that best suits his or her needs, then must drive it appropriately and service it regularly.
The dealership needs to service the car to make sure all checks are performed and necessary maintenance carried out. If the driver drives the car too hard, more things can go wrong and the service might be more drawn out, complicated and costly.
The relationship you share with your financial advisor should be well defined and understood to gain maximum advantage. Good financial advisors bring valuable expert advice. And if you do your part and they do theirs, everyone wins.
When it comes to an annual review, we think investors should ask and answer the following:
Have the circumstances on which your original advice or plan was based changed? Can you still afford to invest as you initially committed? Or do you have more to invest? Did you get married or have a baby? Buy a new house? etc.
Do you understand, and are you still comfortable with, the risks of your investment? Does your money move up and down a little or lot, or not all? Is your money locked away, are there penalties for early withdrawals etc.
Do you understand the growth expectations of your investment? Is the growth guaranteed or not, do you earn interest or other forms of growth?
Do you still intend to invest as per your original time period? If you originally wanted to invest for 10 years, for example, is that still your plan? Or is it now longer or shorter?
Have you made any changes (good or bad) to your investment and how did these affect your investment? Did you miss or stop a few monthly contributions, make premature withdrawals, switch your investment from a high risk to low risk fund, increase your contributions, add extra money, etc.?
Do you have another investment need that your current investment is not meeting? Do you have short-term, medium-term and long-term investments and strategies in place? Use different investments for different investment goals and objectives?
Do you have anything that your advisor can help clarify for you? Staying informed is one of the best things you can do when it comes to your investments.
These are some of the questions that help advisors (and you) ensure that, where necessary, sensible adjustments are made to your investment plan to keep you on the track that best matches your unique circumstances.
We think an annual review is an extremely important part of financial advice and should not be neglected or underestimated. It does not need to be an overly complicated process. In fact, keeping things simple, getting to the point and addressing some of the questions above can add a ton of value.
If you are paying for on-going financial advice, then be sure it includes an annual review.