Building a portfolio around your income and cash needs

Start with the expense and the date

Your portfolio is the set of investments you own. It should fit what you need the money for, when you need it and how much loss you could manage. Money for school fees next term needs a different plan from money you can leave invested for several years.

Write down the amount, date and currency for each important goal. Allow separately for unexpected costs and day-to-day business or household expenses. Choosing the highest advertised return first can leave you unable to access the money when a bill is due.

Separate access to cash, income and growth

Money needed immediately should be accessible without depending on the sale of an investment. For a later, known expense, a short-term investment with a suitable maturity may help, but check its repayment risk and access rules. Do not assume every product described as near-cash allows immediate withdrawals.

A rented property may provide income after expenses. A higher estimated property value is different: it does not pay a bill until a sale turns it into cash. Gold produces no regular income, so meeting expenses from it requires selling some of the holding.

Shard’s resale market is not currently available. If you invest in a Shard property, plan around the property’s sale terms and allow for delays. Receiving rental payments does not give you the right to withdraw the capital you invested.

• Keep near-term spending separate from money committed for longer periods.
• Match expected payment dates to the expenses you want them to cover.
• Allow for rental payments being lower, late or absent.
• Measure a goal in the currency in which you will pay for it.

Look for risks shared across investments

Diversification means spreading investments so that one problem has less effect on the whole portfolio. It can reduce concentration, but it does not prevent losses. Three flats in the same estate may all depend on the same drainage, manager and type of tenant.

Likewise, several lending products may depend on one borrower, and several funds may own many of the same assets. Check what sits behind each investment name. Consider location, currency, borrower, property manager and the dates when money is due back.

For a larger allocation, calculate how much of your total savings would depend on one property or provider. If your business and home are also in the same area, a local disruption could affect more than your investment portfolio. Adding a product you do not understand can introduce new risks rather than reduce them.

Compare what you keep after costs

Property returns can be reduced by empty periods, repairs, management, taxes and purchase or sale costs. Gold can involve dealer spreads and storage. Funds and investment providers may charge fees. Check the charges for the actual product and whether the advertised return includes them.

Compare returns over the same period. An annual rate on a short-term bill does not mean you earn that full percentage before its maturity. For property, show rent received separately from changes in estimated value and profit or loss realised on a sale.

Also compare your savings with the cost of your goal. An investment can grow in naira yet buy less after inflation, or cover less of an expense priced in another currency.

Review when your circumstances change

Review your portfolio periodically and when your income, spending needs or an investment’s risks change. Check that you still have enough accessible money and that one holding has not become too large a share of your savings.

Rebalancing means adjusting the amounts in your different investments. It can involve directing new savings elsewhere rather than selling. With property, a sale may be unavailable or take time, so account for that before increasing the amount invested. Include fees and taxes when considering any change.

Keep records of what you paid, payments received and costs charged. They help you assess actual results rather than relying only on an estimated portfolio value.