Lock up and go investment portfolios – are they worth it?

A Ready-made Portfolio is still one of the most cost-effective ways to have your money managed by investment experts. But what does 'management' mean?

Why portfolio management is important

If you were to replicate the assets from a Ready-made Portfolio in your DIY portfolio, wouldn’t that be just as good? Not really. You would need to monitor the portfolio closely and include the wider markets in your consistent analysis, to be a simpler and more cost-effective option than a Ready-made Portfolio.

In real life, a DIY investment portfolio typically leaves investments to fluctuate with the markets over time. That's why it's good to remember the value of an investment may go down as well as up and you may get back less than originally invested. This means DIY investors often overlook three key advantages of a managed investment portfolio that we will examine in more detail here:

1. Strategic weighting – understand how strategic weighting can influence investments with our hypothetical example
2. Investment management: adapting to the wider landscape – learn why expert market insight is key to responding to global events, and helping you achieve your investment goals 
3. Fund selection can help you avoid undesirable assets – find out why accurate analysis can protect you from undesirable investments with an example of a well-known troubled fund

1. How strategic weighting affects investment portfolios

Let’s say you choose a moderate growth-based portfolio. For simplicity, let's ignore alternative assets and assume this portfolio is 75% equities and 25% fixed interest.

In this example, the purpose of the portfolio is to produce retirement income. Over ten years is allocated to build up the money before any capital is taken from the funds. The equities within the portfolio are designed to produce long-term capital growth. 

The fixed interest portion of your hypothetical portfolio is primarily designed to mitigate risk. When equities struggle, fixed interest tends to do well – if you ignore 2022 when this trend did not play out – and can help limit overall losses during market downturns.

Rebalancing your portfolio can get your investments back on track.

Imagine that you start with a 75/25 equities to fixed interest ratio because it aligns to your need for long term growth.

Let's presume during the first year you hold the portfolio, equities fall in value and the value of the risk mitigating fixed-interest component increases. Your equities are now worth 65% of the value of your portfolio and the fixed-interest portion sits at 35%.

Markets then pick up and the equities within your portfolio start to perform as intended. However, you are now in a lower-risk strategy than you initially planned for, and you don’t receive the expected growth for a 75/25 portfolio.

Over time, a portfolio that isn’t rebalanced may become a portfolio that is not ‘fit for purpose’. This means your portfolio is at a higher or lower risk than needed for your investment goals. Rebalancing a portfolio is the process of buying assets that are underweight and selling assets that are heavier than the strategic weightings you need to achieve your investment goals. 

A balanced portfolio keeps you on track to achieve what you set out to do.

In this case, the consequence of not rebalancing is your hypothetical investment portfolio becomes too low risk to achieve the growth you were looking for from your retirement pot. This in turn could have long-term consequences for your future income potential.

Go deeper and find out more about Your investment portfolio: when was the last time you rebalanced it? 

2. Investment management: adapting to the wider landscape

It’s fair to say that the world around us has shifted significantly in the last few years. Investments that were considered low risk at one point may now be high risk and vice versa.

Our range of Ready-made Portfolios is led by the rationale of our Central Strategy Investment Team, who focus on monitoring and adapting to the geo-political landscape. Recent strategic decisions include: 

• War in Ukraine / Energy crisis: as war broke out and energy access and prices became a concern, our strategists reduced recommended European exposure. Now as energy prices have dropped and the most acute financial risks related to the war have waned, weightings have tilted back towards Europe
• Truss's mini-Budget: the team tilted Sovereign Bond exposure further in favour of US when UK GILT appeared too risky to form part of bond weightings, which were intended to be defensive not speculative
• Silicon Valley Bank (SVB)/ Banking sector issues: their strategy was reduced duration (time-based risk) for a period, to ensure that bonds were still positioned as best as they could to mitigate risk during the market instability

Go deeper and see what expert analysis can do for your investment portfolio and your investment goals with our real-life case study.

3. How fund selection can help you avoid undesirable assets

There is also the element of fund selection. The Central Strategy Investment Team scrutinise the funds within the Active Portfolios. Additionally, they monitor those considered as potential holdings. This helps to prevent portfolio holders owning assets that may prove to be undesirable.

For example: 

• Woodford Equity Income Fund: at one point this fund featured consistently in our regular list of the 10 most popular funds among our clients over the preceding month. It was added to the Spot the Dog list before the fund was closed, but being a managed strategy, this meant that as soon as a fund or asset was perceived as unnecessarily risky, we moved it out of the strategy without you as an investor having to administer changes.

Funds deemed unnecessarily risky will also not be considered for inclusion when the investment team look for new assets to introduce. 

Go deeper and join our experts Daniel Casali, head of Investment Strategy, and Investment Partner Richard Griffith in an epic bull versus bear debate: Grumble in the Jungle examines important market influences.

Decide how your investment portfolio is managed

You can:

1. Manage your investments yourself

If you have the time and inclination to put a certain level of research into your portfolio and overall markets so you can keep your holdings in line with a risk strategy that suits you, this is a fantastic and cost-effective way to grow your investments.

2. Choose a managed investment portfolio

If you want your investments to ‘tick along’ in the background, a managed investment portfolio will help stop your holdings drifting outside the investment strategy you devised to meet your investment goals. And you can avoid being tripped up by wider market moves and unnecessarily risky investments.

Bestinvest can help you achieve your investment goals

Our range of expertly built Ready-made Portfolios can help take the faff out of investing in a cost-effective way, so you have more time for yourself. You won't pay more than 0.2% service fees.  

Each Ready-made Portfolio is managed by our team of investment experts at our parent company Evelyn Partners (they look after more than £50 billion of people's money). With three ranges available offering you cost-efficiency, sustainability or maximising returns for the risk you take, you can choose a Ready-made Portfolio that suits your investment goals. 

You work hard for your money. Why don’t you get it working harder for you with a Ready-made Portfolio at Bestinvest?  

Choose a Ready-made Portfolio

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