Changing your investments

Costs vs BenefitsThere are bound to be times when an investment isn’t performing the way you want it to. But before you decide to sell up and put your money into something else, there are a number of things to consider. In fact, deciding when to sell an investment deserves just as much thought as deciding what investment to buy.

You first need to consider whether your investment expectations or timeframe are realistic. If it is a medium- or long-term investment, it will more than likely be volatile at some time during the investment term. In other words, you should expect the occasional rough patch or poor year. It’s a bit like a long distance runner – what matters is the average lap time, not the slowest lap time.

Furthermore, if you are investing for the long term, beware of moving from one area to another too often. This can be a trap for the unwary investor who may end up having to buy high and sell low!

Changing investments may also incur costs – particularly where superannuation schemes or insurance bonds are involved. There could be fees charged if you decide to switch your investment, such as redemption fees for getting out of the old investment and/or entry fees for getting into the new one. If there are fees, will these cost you more than simply staying put? In addition, just how sure are you that the new investment will perform better, anyway?

Finally, do check for any tax issues. Buying and selling investments regularly could attract the IRD’s attention and see you hit with a tax bill.

The key point is not to rush into selling, simply because an investment’s performance has been poor or less than that of competing products.

If you have invested your money into a well-diversified portfolio of assets tailored to your risk profile and objectives, you shouldn’t need to make major changes too often. Before making any decisions, it pays to talk it over with an authorised financial adviser.