10. Make sure income is sustainable
Many income fund managers will target the highest yield that is sustainable, but some will sacrifice your initial capital in order to generate even more income.
This was highlighted recently in a study of UK equity income managers by Hargreaves Lansdown, the fund shop. It found that the top three funds by income had actually depleted the original investment. This will hit future income.
As Laith Khalaf, of Hargreaves Lansdown, said: “A lower capital base will affect the potential for these funds to generate high levels of income in the long run.”
11. Buy the fewest funds you can
While portfolios need to be diversified, investors can end up spreading their money too thinly across funds.
Sam Lees, at fund research service Fund Expert, suggested 15 funds as the most that any investor should hold. “If your portfolio is 20 funds or more, an overhaul is definitely in order: you will be struggling to keep track of them all,” he said.
However, it depends on what you’re investing in.
There are one-stop-shop funds, that aim to offer a fully-diversified portfolio, which mean you could invest in just one fund. However, if you are spreading your money between different countries and assets, you will need more funds.
12. Make sure your portfolio meets your needs now
People often put their portfolios together and then do not revisit them for a number of years.
But investors should revisit them frequently to make sure they still meet three factors: your attitude to risk, investment time horizon and investment goals.
13. Don’t stick all your money in the UK
British investors, like many others across the world, like to invest in what they know and understand. This means they end up overexposed to the UK stock market.
Research from Vanguard shows that at the end of 2014 (based the latest available data from the International Monetary Fund) UK investors on average had 26.3pc of their portfolio in UK assets, compared to the 7.2pc that the UK represented of global markets.
Allocating more money to “global” funds, that invest in different countries’ stock markets can help to combat this.