It would be an understatement to say that the current investment landscape is highly volatile. As a result, investors on board for the ride are choosing not to simply go with the flow. Instead, they’re making certain changes to their investment portfolios.
Here’s a look at the big adjustments UK investors are making and what you can do to make sure your holdings are kept safe.
[top_pitch]
What did 7,000 investors do with their portfolio last month?
According to new research from Hargreaves Lansdown, more than 7,000 investors took a long look at their portfolios and made some serious moves.
This activity was partly encouraged by notifications the platform sent to investors. And investors took steps in an attempt to keep up with altering market sentiment.
So, what were these changes all about? The answer is quite straightforward: risk.
How did investors risk-adjust their portfolios?
With plenty of uncertainty, lots of investors in the UK have decided it’s time to batten down the hatches and diverge from the riskier assets that have grabbed headlines over the last couple of years.
Nadeem Umar, senior investment marketing and content manager at Hargreaves Lansdown explains why the brokerage used communication nudges to encourage investors to lower their risk exposure.
He says, “The two biggest ways people could improve their performance was by increasing their diversification and not taking too much risk.
“In particular, we discovered that the wider variety of investments someone had, the better their performance was, on average, over the long term.”
[middle_pitch]
Is there a portfolio risk if you hold too much cash?
You might think that the easy solution is to sell out of the market altogether.
However, holding too much cash in your portfolio comes with its own risks.
Once you’ve got a decent emergency fund set up (ideally three to six months’ worth of expenses), all your remaining cash is losing value by the day. This is due to the high levels of inflation we’re seeing right now.
If inflation is running at 5%, you can think of this as a -5% return on your cash, which is not ideal. Inflation is always a concern for your money, but in times like these, it’s even more of an issue.
Although Hargreaves Lansdown encouraged investors to diversify and reduce their risk, they also nudged those on the other end of the spectrum to consider putting idle cash to work. As a result, over 1,200 investors who held a fifth or more of their portfolio in cash took action.
How can you invest with your portfolio whilst managing risk?
What you consider risky is likely to differ greatly from another investor’s perception. What’s deemed risky for you will depend on loads of factors such as your:
- Strategy
- Long-term goals
- Investing timeline
Some investments come with a higher level of risk than others. But more risk can lead to greater rewards in some instances. So, you don’t always have to opt for the lowest risk possible. You should aim to invest and buy shares in companies you’re comfortable supporting.
By creating a diversified portfolio, you can hold a mixture of assets that lie along the spectrum of risk. This way you have your safer investments as a backbone and your more speculative picks as outer limbs. Doing this gives you some risk exposure and some stability. The exact way you organise this will depend entirely on your personal circumstances.
Just remember that all investing carries a degree of risk, no matter how diversified your portfolio is, and you may get out less than you put in. So, always invest carefully and make sure the rest of your finances are looking healthy first.
