Making the most of your EOFY portfolio review

While you can – and probably should – review your portfolio any time, end of financial year can often be a catalyst for making those decisions about your investments that you keep putting off. With 30 June approaching, here are some tips to help you get the most from your annual review.

1. Is your portfolio meeting your needs?

While the tax consequences of your decisions can loom large at this time of year, the first decision you need to make is whether your portfolio is still meeting your needs. Is it providing you with sufficient income? Are you taking an appropriate amount of risk for your objectives? Have your circumstances changed, meaning a change of strategy may be welcome?

The investing environment has changed dramatically with the return of inflation and the normalisation of interest rates. For younger investors, this may not be particularly relevant, as you may be actively seeking capital growth, but for older investors who’ve been forced to reallocate your portfolio as rates fell to zero, you may be considering a shift back to more secure assets that generate the income you need.

Many investors choose to reduce risk in their portfolios as they near retirement, fearing a loss of capital could substantially reduce their standard of living in retirement. As rates rise, reallocating to fixed income and defensive assets can make sense, but it is worth considering the value of retaining growth assets to maintain your purchasing power over time.

2. Would I buy this today?

If your portfolio is broadly allocated to the right asset classes, and you’re comfortable with your overall investment strategy, it is time to look at the individual assets you hold.

In your share portfolio, you’ll (hopefully) have many winners, some underperformers and some stocks that haven’t done much. While you can’t do much about the poor performance, you can consider the future prospects of your holdings – is the environment conducive to a turnaround? Is company management taking the right steps to improve performance? Is performance fine but the market is not appreciating the stock or sector right now?

One good question to ask yourself is ‘would I buy this company today?’ We are often irrationally attached to our holdings, despite their unappealing prospects, and it can be hard to treat them like any other asset. If you’re struggling to accept that you might have to sell a loss-maker – or even let go of a winner – consider whether you’d buy the company today. Usually you already know the answer.

3. You don’t always have to be a contrarian

Many nabtrade investors show a strong contrarian streak, and have a clear preference for trimming their holdings on strength, and buying quality stocks at a discount – usually after bad news or a period of weakness in the share price. You don’t necessarily need to apply this logic to your holdings, however. I am currently helping an investor who bought both Woolworths and Commonwealth Bank shares in the float; while she was happy to pay less than $10 for CBA in the early 1990s, she would never dream of buying them at nearly $100 today. Does that mean she should sell (or at least take some profits) and rotate into something with greater potential? Of course not. She doesn’t need another 10-bagger, it’s unlikely she has a three decade timeframe, and a stable portfolio of blue chips suits her needs perfectly. 

4. Consider the tax implications of your choices

Tax should never be the primary consideration for selling an asset – but it should be at least one of your considerations. In the example above, the capital gains tax liability is huge, and crystallising the gain serves no purpose. If you have some loss-making assets and some gains, it can make sense to offset the former against the latter, but it’s important to ensure you don’t fall foul of the ATO. We’ve covered some of the key issues to consider here.

As with all EOFY planning, if you’re not sure of the rules or you want to ensure you’re optimising your position, visit the ATO website, or speak to an appropriately qualified tax professional.

You’ll also need to keep your records in order. To see how nabtrade can help, visit our tips page here.

This information has been provided WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by National Australia Bank Limited (ABN 12 004 044 937 AFSL 230686) (NAB) in preparing this material. NAB does not warrant or represent that the information, recommendations, opinions or conclusions contained in the material (“Information”) are accurate, reliable, complete or current. The Information has been prepared for information purposes only. Any statement as to past performance do not represent future performance. The Information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, NAB recommends that you consider whether it is appropriate for your circumstances.