Portfolio management

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1. First things first

Portfolio management begins outside your portfolio.

You should only put at risk money you can afford to lose. Don't start a share portfolio until you have taken care of all your other financial priorities.
Otherwise -

• in the worst case, bad luck, mismanagement or fraud may deprive you of cash you need for essentials, such as mortgage payments
• in quite ordinary cases, you may suddenly find yourself forced to sell your investments to raise cash for everyday needs or emergencies - and forced sellers tend to get poor prices.

Here is a checklist of the priorities you need to take care of, in order of importance:

1. Buying a home
   You won't be comfortable in later life, let alone rich, if you are still paying rent. Instead, you must aim to buy your own home. Unless you can buy outright, your first priority is to ensure you can pay the mortgage on your home without undue strain.
2. Covering basic living expenses
   Of course, it all depends on how many people you are supporting and what you mean by 'basic'. Try to calculate a rough monthly average that includes household bills, car expenses, school fees, hire purchase payments, other standing orders or direct debits, and a few treats. Be honest with yourself!
3. Funding a pension
   There are several reasons why paying into a pension takes priority over investing for yourself:
   • You benefit from generous tax breaks on such payments
   • Regular monthly payments enforce a discipline you might otherwise lack
   • You may eventually decide you do not have the time or inclination to manage your own portfolio
   • You may eventually discover the returns you are getting by yourself are lower than those from your pension fund.

4. Taking out life insurance
   Those terrible TV ads fronted by phoney grey-haired actors have a point. You don't want to leave loved ones in the lurch if you die prematurely. Take out a big enough policy to provide for them just in case.
5. Maintaining a contingency fund
   Set aside a contingency fund for unexpected needs and emergencies. Allow about 3 months' worth of income. Keep it in a high-interest, instant-access deposit account.

1. First things first 2. Should you invest before paying off your mortgage? 3. Do you want growth or income? 4. Diversification: summary 5. Diversification: Safe custody 6. Diversification: asset allocation 7. Diversification: shares 8. Diversification: sectors 9. Diversification: countries 10. Balancing your portfolio 11. What should you hold where? 12. Tips for married couples 13. Lump sum or drip feed? 14. The role of cash 15. Rebalancing your portfolio 16. What to do with dividends 17. All about bonds 18. What to do if you inherit a portfolio 19. Benchmarking performance 20. Setting up a portfolio spreadsheet 21. Conclusion

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