Keeping track
How well your investment grows will usually be the single most important factor determining how much money you get back from your investment. But this is not something you can predict.
You might be tempted to look at past performance - how well a provider's investment funds have grown in the past. But a lot of detailed professional studies have found only a very weak link, if any, between past performance and how well a provider's investments grow in the future. Funds which have performed badly in the past may continue to perform poorly in future, but past good performance is not necessarily a good indicator of future winners.
You can work out how well your investment is doing by comparing it against a benchmark, which is a comparison point. It enables investors to measure the performance of funds in the same peer group or category.
For example, UK equity funds may use the FTSE All-Share index as a benchmark. This index contains about 750 of the largest companies that are listed on the UK stock exchange.
It is important to regularly review your investments. As your life and the world around you change, your financial plan will need to adjust and adapt.
Review your investments monthly or quarterly for short to medium-term goals, to check that you are still on track and once a year in the case of major long-term goals, such as paying off your mortgage or building up a pension fund.
You'll need to take into account whether your investments are performing in accordance with your expectations and if your plan still matches your current attitude to risk.
Top tips
- A review should be triggered if your circumstances change - for example, if you get a pay rise, lose your job, get married or get divorced, have children, buy a house, a family member dies, you get an unexpected windfall, and so on.
- Set up an electronic diary reminder to help you remember when to review your investments.
- Take past performance claims with a pinch of salt. Nearly all companies can select a short run of figures which make them look better than their competitors.