Asset allocation - Overview

What is meant by Asset Allocation?
There are several different types of assets, which a fund manager can invest in, and these fall into four main categories

Cash – Cash in investment terms, is money invested in banks, building societies and other organisations to produce interest. This is one of the safest ways to invest your money although the interest paid can be lower than the rate of inflation so that, in real terms, your money may fall in value.

Fixed Interest – by this we mean bonds. Bonds are loans to a government, known as gilts, or to a company, known as corporate bonds. These are for a set period and return a pre-determined income They produce a known return in the form of a fixed rate of interest throughout their term (conventional bonds) or interest that is linked to inflation (index-linked bonds). This predictability makes them an ideal tool for financial planning

Property – This usually means investing in commercial property such as offices, retail, leisure, and industrial developments, although you can also include residential property.

Equities – These are also known as shares. Owning shares in a company means that you have a share in the value of the company’s assets through its share price. It also means that you can share in the company’s profits by receiving dividends. These are payments from a company to it’s shareholders and are usually paid twice a year. Shares are bought and sold on the stockmarket and their values can go up and down.

Each of these asset categories can be sub-divided into various classes.
One of the most effective ways of reducing the risk to your investment is to spread your money across different asset types. This limits your dependence on any one asset class.
We allocate your money across these different classes to try to obtain the best possible investment returns, in line with your personal expectations and attitude towards risk. We believe that clients with a well constructed portfolio are in a strong position to weather the storm when the markets fall but capture positive returns when the markets pick up. Underpinning this strategy is the basic principle of not placing all of your eggs in one basket.

The consensus amongst many investment experts is that getting the right asset allocation is the most important factor in maximising long-term performance. Research has shown that more than 90% of investment performance comes from Asset Allocation, with less than 5% coming from fund selection. Each of the Asset Classes has a different Risk and Return profile and a key aspect of the process involves our working with you to establish the ideal balance for your portfolio.


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