Ways to Help Improve Your Portfolio Holdings
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Building a successful investment portfolio is no simple task for beginners, but six tips can help ease the process. Some of the items on this checklist may sound overly simplistic, but they are vital rules that deserve reiterations. Too many new investors think they can ignore these rules and still succeed, only to find that they would’ve been better off following tried-and-true strategies.
As you read through these six tips, remember that the application of this advice will depend significantly on the specifics of your situation. Every decision should keep your overall financial situation in mind. When in doubt, seek the advice of a qualified tax professional and investment advisor.
Set Clear Objectives for Your Investments
You need to know exactly why you’re investing and what you expect of your money. Otherwise, you are going to be like a rudderless ship at sea—no direction and no purpose. Common investment objectives include capital appreciation, capital preservation, income, and speculation. An investment portfolio that aims to achieve capital appreciation will look much different than an income portfolio, for example, and they’ll perform differently over any timeline.
If you aren’t clear about your goals, you could become disappointed in your returns. You might’ve followed the strategy perfectly, but you pursued the wrong objective.
Minimize Investment Turnover
As the saying goes, “don’t rent stocks, buy businesses.” If you aren’t willing to own a business for at least five years, don’t even consider buying shares unless you fully understand and accept that the short-term stock market is irrational, volatile, and capricious.
Aside from the volatility, there are tax advantages to holding onto investments. The profits on long-term investments are taxed at a lower rate than short-term investments, and dividends from those investments are often taxed at a lower rate than distributions from recent additions to your portfolio.
Short-term positions are more associated with trading than investing. Trading strategies differ from investment strategies because they seek to capitalize on the short-term volatility of the stock market.
Every dollar you give up in fees, brokerage commissions, sales loads, and mutual fund expenses is a dollar that can’t compound for you. While an expense ratio of less than a percent might not seem like much, it adds up over time. By finding ways to reduce your costs early on in your investment timeline, you could end up saving hundreds, thousands, or even millions of dollars by the time you retire.
Take Advantage of Tax-Efficient Accounts
Two great investment tax shelters designed for lower and middle classes in the United States are the Roth IRA and the 401(k). Both account types have tax benefits that can make them incredibly lucrative, but there are unique rules and contribution limits that must be kept in mind. You’ll also pay a penalty tax if you withdraw money from these accounts before age 59½ (though there are exceptions to this rule).
While both retirement accounts come with tax benefits, the benefits are different. Investors need to choose an account that fits with their goals and investment style.
A 401(k) plan allows you to invest in a variety of mutual funds, and employers may offer to match your contributions to the account. Whatever you contribute is deducted from your taxable income. You’ll pay taxes on the money when you withdraw it in retirement. By deferring taxes until retirement, you’ll likely pay fewer taxes, since your income (and income tax rate) will likely be lower in retirement.
As far as taxes go, a Roth IRA is a kind of opposite to the 401(k) plan; money is taxed upfront, but it can be withdrawn tax-free in retirement. That means you don’t pay taxes on the capital gains, dividends, or interest your money earned as it sat in the Roth IRA.
Never Overpay for an Asset
There is no getting around it—price is paramount to the returns you ultimately earn on your investment portfolio. Stock prices fluctuate in the short-term, so even a good investment can be overpriced. This is where fundamental analysis comes in handy. By researching the details of the company’s finances, you can feel more confident in paying a fair price for a stock.
On the other hand, a low price doesn’t offset an otherwise bad investment. You cannot buy a cheap stock with a low earnings yield and expect to do well unless you have reason to believe the company will grow significantly or experience a turnaround.
Another classic saying offers some investment wisdom on this issue: “don’t put all your eggs in one basket.” Nor should you put all your money in a single investment. You may have heard that you should seek out high-quality blue-chip stocks with steady dividend yields, but you don’t have to choose just one blue-chip stock. You could easily find a dozen companies with similarly beneficial characteristics.
By diversifying, you’re spreading your risk across different sectors, industries, management styles, and geographic regions. When something negative happens—a company goes bankrupt or a natural disaster affects industries in a certain region—the impact will only hit a segment of your portfolio. Sure, you will feel the negative effects, but not as intensely as you would have if you had put all your money in that one company or region.
For many investors andВ developers, keeping a property portfolio can be a challenge, and growing your portfolio can sometimes seem nigh on impossible. Here are 5 tips to consider that could help you along your way.
- Managing and building your property portfolio
- How to build a property management portfolio
Managing and building your property portfolio
For many investors andВ developers, keeping a property portfolio can be a challenge, and growing your portfolio can sometimes seem nigh on impossible. Here are 5 tips to consider that could help you along your way.
How to build a property management portfolio
There are a number of things to evaluate before attempting to build up a property portfolio. Start with one, and get that right before adding to it. Hindsight is useful вЂ” think about the risk before you end up managing multiple properties you can’t sustain or develop.
Reinvest your profit
By pumping your profits back intoВ developments, you’ll drive the quality of your portfolio way up. The next step is to reinvest money into expanding your portfolio, as this can lead to very positive results. The main challenge here is patience, as it can take time to build these funds up вЂ” and you need to keep an eye on yourВ cash flowВ andВ working capital.
Do your research and buy at the right time
When redeveloping a property, you should ensure you do all of your research early so you can avoid the small problems. Make sure you research the property area. For instance, if you specialise in multiple-occupancy development, know that you can fill your house – youвЂ™d never develop a house intended for students in a town with no university!
ItвЂ™s simple, but take your time to understand your market before you buy or do any work вЂ“ donвЂ™t buy a property just because you like the way it looks, and ensure the developments you make suit its potential tenants or buyers. Finally, get your timing right. DonвЂ™t rush into a project you have any reservations about.
Consider all property uses
Going back to your research, you should already know what’s best, but if you have a number of options available it’s worth speaking to an expert. There are some great options for a property once developed, with buy-to-let and HMO being the most common, and a consideration could be a straight property development. These are suited to different areas and demographics and it’s worth spending time to understand what they involve and how they can work for you.
Refinance your portfolio
There are lots of different ways you canВ manage your outgoings, but for those struggling to confidently maintain the complicated finances of multiple properties, a consideration could be to wrap all of your existing loans into one. Not only is this a great way of giving you clarity on what you’re managing, but it can also help you reduce associated costs like arrangement fees вЂ” giving you a clear idea of where you money is going.
If you think youвЂ™ve got what it takes, when building a portfolio of properties you could look forВ alternative financeВ options designed to help you on your way. You should also take a look at some of the property finance solutions which can help if you have this under control вЂ“ as you could be missing out on a better deal.
Investing in property can be a profitable venture if done correctly. Follow these tips and you will soon be well on your way to building a property empire.
1. Choose flats over houses
Most successful investors will tell you that smaller properties, like flats, generate a better return than houses.
If your budget can stretch that far, go for a 2 bedroom, 2 bathroom flat. The greater flexibility will make the property attractive to a wider range of tenants so it’s less likely to lie empty.
2. Be patient
Make sure that you weigh up the pros and cons of an investment before you commit. Always remember that property is a long term investment. If you want to make money from it, you need to be prepared to be in it for the long haul. Don’t put yourself in a position where you’re forced to sell quickly because you over extended yourself financially.
3. Look for ways to add value
One of the best ways to make money out of a property is to add value to it. Renovating bathrooms and kitchens, for instance, will ensure you get a better return when renting the property out and make you more money when you’re ready to sell.
4. Become tax-efficient
You will never become a property millionaire if you pay the taxman more than you absolutely have to. Speak to a tax advisor on the best entities for buying a property and how you can save tax on your rental income.
5. Don’t put all your eggs in one basket
If you were investing in stocks and shares, any financial advisor worth his salt would advise you to diversify your portfolio so that the risk is spread. The same would be true for property investments. Spread your property portfolio across different properties in different areas to minimise your risk.
6. Exploit local knowledge
There is little point in trying to spot a property bargain hundreds of kilometres away. You’re not an expert on the area and are not likely to be able to judge whether the location, price etc. are good or not. A bargain will be much easier to spot in your own backyard. It will also be much easier to keep an eye on your tenants if you live nearby.
7. Find professional partners you can trust
Unless you’re part accountant, part lawyer and part DIY expert you’re going to need professional help in building up your property portfolio. Finding dependable builders, lawyers and accountants is not just key to maximising your profits, but will offer you peace of mind during a complex process.
8. Don’t turn your nose up at unfashionable suburbs
You don’t have to pay a premium for a property in a fashionable area in order to make a decent return. A property in an unfashionable suburb will often give you a return that is as good, if not better than a more “happening” one.
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Posted on December 2, 2020 by BenBarnes –
There are many private landlords in the UK, and they all need to keep track of how their properties are doing and whether they are making a profit on their investment.
Estate agencies will often do all these functions under a managed service contract. Still, to do this properly, the estate agent needs a robust and reliable system to monitor the income and outgoings and capital growth and explain any discrepancies in the financial numbers.
The Excel Experts recently built a custom Excel spreadsheet system for an estate agency offering management services to private landlords. If you need something similar please do contact us.
The Brief: Create a Robust Tracking and Financial Reporting Tool
The estate agency managed a large number of properties on behalf of the landlords. It urgently required a system to keep track of what was happening with each property to report back to the landlords on how well their property portfolio was doing financially.
Using Excel, we built the property portfolio workbook for an estate agency to keep track of their clients’ property portfolios and investments.
The idea was that the agent put in the necessary data. The workbook calculated all the important indices such as ROI and net annual returns over a possible 10 year period. This could clearly save the agency a lot of time, offering an excellent potential ROI on the original project’s cost.
The Finished Spreadsheet
The completed Excel Workbook made a huge difference to the efficiency and reporting capabilities of the estate agents. The easy to use solution has 5 Tabs – Income, Rent, Total Returns and 2 sheets of charts.
The Income Tab
On the Revenue side the spreadsheet needed to keep track of the following for each property for a landlord:
- Rental income received
- Agency management fees
- Agency charges, e.g. finding a tenant
- Outgoings such as repairs and refurbishing
- Ground rent and insurance
- Compliance charges, e.g. gas safety certificate and electrical safety checks
- Void costs
- Service charges and insurance
- Monthly net payments to the landlord.
It also kept track of the length of the tenancy length and inspection visits to be planned for when required or when the tenancy was coming to an end.
The Capital Tab
On the Capital side, a separate sheet or tab kept track of the property’s capital growth, showing the capital gain in each year, compared to the original cost of the property, and taking into account the one-off costs like stamp duty and conveyancing.
The Total Returns Tab
This tab brought everything together into a summary and showed:
- Rental Earnings
- Total One-Off Costs
- Capital Gain (including One-Off Costs)
- Net Annual Returns
- Total ROI%
The supporting tabs for Income and Capital provided an audit trail to show how these summary figures were calculated.
The Total Returns tab also duplicated the Chart Tab charts so that a visual picture was instantly available.
The Chart Tab
Charts were incorporated in the spreadsheet on a separate tab to show the information visually either by 12 months, rolling 12 months, or historical or forecast years using the following data:
- Gross Rental Yield Per Property Per Year
- Capital Gain Per Property Per Year
- Total ROI (Return on Investment) per property per year
The Excel Experts created a multi-tab spreadsheet to capture all this information easily and reliably and add filters so that the estate agent could focus on a particular landlord or a property to see the exact financial picture point in time for a given property portfolio.
Important indices were calculated, such as the ROI percentage (Return On Investment), and using Excel’s forecasting tool, showing net annual returns over a possible future 10-year period.
Using specific filters on the spreadsheet data, the estate agent could easily produce meaningful and informative reports on property portfolios to be emailed to the landlord regularly.
The whole application was designed to run on Microsoft Windows and can easily be adapted to run on an Apple Mac.
Thanks to the Excel Experts and the ingenuity of their team, a robust and informative system was put in place that satisfied all the client’s requirements.
The big advantage for the estate agency was that many employee time and costs were saved through this system’s use. The estate agency customers were delighted with the timely and accurate reporting that this system produced on their property portfolios.
A robust platform like this application could easily be developed further according to future client requirements and changes.
“The Excel Experts has helped me with two projects. The experience of working with the expert assigned to my project has been excellent. The patient asking questions, the completion on time and the follow up have all been highly professional.” N.C
“Excellent all-round service, no complaints at all and will use again.” TCE.
Contact The Excel Experts with your requirements and we’ll help you to automate and streamline your business with a custom Excel application.
Property investment is a business. It has its own particular characteristics, but it also shares a lot of fundamental traits with businesses in general.
One of those traits is that setting out a clear business plan is often crucial to long-term success and should ideally be undertaken before you begin your property investment journey and updated regularly as you progress in line with your changing circumstances. Even if you are already involved in property investment, taking some time out to review and preview could be a very worthwhile exercise.
Start with the why
Why are you interested in investing in property? The answer to this question has to be something more specific than “to make money” because there are plenty of other ways to do that. What, exactly, has attracted you to an investment property for sale as opposed to any other kind of investment? This should help you gain an insight into your real motivation, which should always inform your decision-making processes.
Decide whether you are mainly interested in capital gains or yield
There are basically only two ways to make money from any investment, including property, namely capital growth and yield. Knowing your motivation for investing in property will help you to decide which one to target. For example, if you know you have a major life event coming up in five years or so, perhaps a child going to university, then you might look for properties where there a reasonable expectation of locking in good capital gains during that time. Alternatively, if you are looking for a means to pay your bills regularly in retirement, then rental yield is likely to be your better option.
Size your goals to your resources
Every so often there is a story about an investor who made a tiny investment and promptly became an overnight millionaire. It can happen, it does happen, but it doesn’t happen often, not even in the most vibrant and buoyant of property markets. Generally speaking, people with smaller investment funds can expect smaller returns than those with larger investment funds and hence should set their goals and expectations accordingly. On the plus side, those smaller gains can still add up over time and create very meaningful returns.
Set processes in place to manage your portfolio effectively
Astute investors think ahead and manage their resources to deliver the best returns. One of these resources is your time and given the legalities around managing property these days, particularly residential property, there is often a very strong case for using letting agents deal with the day-to-day running of a property. You might also with to enlist the services of a proper accountant to ensure that you hold on to as much of your hard-earned profits as you possibly can.
Define an exit strategy
You may have no immediate plans to exit the property market, you may never intend to exit it, but it is still wise to have an exit strategy in case your plans change as life does happen and yours may lead you in directions which are unexpected, even if they are welcome.
For more information on UK property investment, please contact Hopwood House.
Here’s what it means to construct a balanced portfolio and how to make sure your portfolio stays that way.
Balancing your portfolio means constructing a portfolio that fits your individual risk tolerance and investment goals. But it isn’t enough to just “set it and forget it.” You also need to make sure your portfolio stays balanced, which is known as rebalancing.
Here’s a quick summary of what investors should know about balancing and rebalancing an investment portfolio:
- Balancing your portfolio ensures that you have a mix of investment assets — usually stocks and bonds — appropriate for your risk tolerance and investment goals.
- Rebalancing your portfolio allows you to maintain your desired level of risk over time.
- Portfolios naturally get out of balance as the prices of individual investments fluctuate over time.
- You can rebalance your portfolio at predetermined time intervals or when your allocations have deviated a certain amount from your ideal portfolio mix.
- Rebalancing can be done by either selling one investment and buying another or by allocating additional funds to either stocks or bonds.
With that in mind, what is the goal of balancing and rebalancing your portfolio, and why is it so important?
Why is balancing and rebalancing a portfolio so important?
The purpose of balancing a portfolio is to achieve your desired proportions of risk and return potential in your investment portfolio.
When you first design and commit funds to an investment strategy, that is known allocating your assets. As a simplified example, you may want to have 70% of your portfolio in stocks and 30% in bonds. When you initially fund your portfolio in this manner, it would be what you consider a balanced portfolio.
The problem is that, over time, these allocations in your portfolio don’t stay the same. Let’s say the stock market’s value doubles in five years while the value of the bond market grows but not nearly as much. The value of the stocks in your portfolio would become much greater than the value of the bonds, which puts your investment portfolio significantly out of balance.
You can and should rebalance your investment account to maintain a balanced portfolio over time. If your original risk tolerance spurred you to invest 70% of your money in stocks, then your rebalanced portfolio should be 70% stocks once again.
How to rebalance your portfolio
How does portfolio rebalancing work? In a nutshell, rebalancing means selling one or more assets and using the proceeds to buy others in order to achieve your desired asset allocations. Continuing with the example above, you would either sell some of your stock investments and put the money into bonds or buy more bonds in order to realign your asset allocation with your risk tolerance.
Which of these options sounds more appealing to you?
- Sell high-performing investments and buy lower-performing ones.
- Allocate new money strategically. For example, if one stock has become overweighted in your portfolio, invest your new deposits into other stocks you like until your portfolio is balanced again.
You may prefer the second option because rebalancing in the “traditional” way — without investing any additional money — requires you to sell your highest-performing assets. We’re generally fans of the second option since rebalancing by contributing new funds enables you to leave your winners alone to (hopefully) continue to outperform.
It’s worth mentioning that if you invest through a robo-advisory service or an employer-sponsored retirement plan such as a 401(k), your portfolio may rebalance automatically.
Determining how a balanced portfolio looks for you
Unfortunately, there’s no perfect method of determining your ideal diversification in a balanced portfolio.
One method of determining the best asset allocation for you is called the Rule of 110. Subtract your age from 110 to determine what percentage of your portfolio should be allocated to stocks, with the remainder mostly in bonds. For example, if you are 39, so this means that about 71% of your portfolio should be in stocks, with the other 29% in bonds.
You can use this method, but it’s also important to consider your individual situation. If you consider yourself to be a risk-tolerant person and short-term market fluctuations don’t bother you, then your balanced portfolio could shift a bit in favor of stocks.
On the other hand, if stock market volatility keeps you up at night, then you can err on the side of caution by allocating more money to bonds or even to cash. A portfolio that is balanced for me may not be — and is probably not — balanced for you!
When should you rebalance your portfolio?
Once you’ve determined your target asset allocation and have created a balanced portfolio, the next logical question is, “When should I rebalance my portfolio?”
There are two general ways to approach rebalancing. You can either rebalance your portfolio at a specific time interval (say, yearly), or you can rebalance only when your portfolio becomes clearly unbalanced. There’s no right or wrong method, but unless your portfolio’s value is extremely volatile, rebalancing once or twice a year should be more than sufficient.
One big advantage of portfolio rebalancing for long-term investors
When market values plunge, instinct tells us to sell our holdings before conditions get worse. And, when market values only seem to rise and “everyone” is making money, that’s when we want to put our money into the market. This is human nature, but it is also the exact opposite of buying low and selling high.
Being essentially forced to sell high and buy low is one of the most significant benefits of maintaining a balanced portfolio over time. For example, if the stock market crashes and equities lose 30% of their value, then the bond allocation in your portfolio is likely to become too high. Restoring balance to your portfolio could involve selling some of your bond investments and buying stocks while they’re cheap. Establishing a balanced portfolio and taking steps to keep it that way can help you to avoid relying too much on emotions when making important investment decisions.