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Paul Clitheroe’s guide to spring cleaning your investments

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It's time to dust off the calculator and start poring through receipts - tax time is around the corner, and that means a refund could soon be coming your way. The end of the financial year is also a time to take stock of your investment portfolio.

As much as we all love to get money back on tax, completing a tax return inevitably means going over a year’s worth of paperwork, from bank statements to investment records.

It can be something of a trip down memory lane. But it can also confront us with some hard realities – like how much we spend, and how well – or poorly – our investments have performed over the past 12 months.

On the spending front, experience tells me that Australians frequently underestimate how much they pay for financial products. Research by UBank found 85% of home owners don’t know their home loan rate. If the vast majority of us are hazy about the cost of our mortgage, it’s a fair bet that plenty of investors don’t have a clear idea of the fees they are paying on investments.

This tax time, don’t just go through the motions of completing your tax return. Use the opportunity to take a closer look at your investment statements to check the fees you’re paying. What may seem like a low monthly fee can quickly add up, and high fees will erode your net returns over time.

While you’re checking out your investments, it’s a good idea to see if your portfolio is still in line with the original proportions you first established – in other words, if your ‘asset allocation’ is out of whack.

The sharemarket falls seen in March may mean your portfolio’s weighting to shares is below your target level. This is a problem that can easily be solved by drip-feeding funds into the asset classes that you are underweight in. It’s a way to avoid triggering a capital gains tax liability on the sale of investments you are overweight in, while also giving your portfolio the benefit of dollar cost averaging.

This process of rebalancing is like a spring clean for your portfolio. And the end of the financial year can be a good time for the job as it can provide opportunities to manage tax on your investments. If you cash in any poor performing investments in your portfolio, you may be able to offset the losses against capital gains on those assets that you’ve sold for a profit. As always, it pays to talk to your tax professional for tailored advice.

Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine. This is an InvestSMART Group (AFSL 282288) publication. The article was originally published on 22 June 2020. This article contains general investment advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. You should consider the product disclosure statement before making a decision about a product. This article does not reflect the views of WealthHub Securities Limited.