Asset allocation -how to build a portfolio
March 4th, 2009
A portfolio is simply shorthand for the collection of investments an investor owns. Ideally this will be spread across a variety of assets – equities, bonds, property and cash – in a mix that has been determined by that investor’s specific objectives. The process of deciding how much to invest in each asset class is known as asset allocation. For example, equities have traditionally offered higher returns over the long term but at the price of increased risk while, at the other end of the scale, cash has offered both security of capital and stability but with a fluctuating income and no chance of capital growth. Actual returns are dependant on many variables, such as the health of the economy in which you are invested, inflation, interest rates and market sentiment. The elements that impact each asset class vary and one asset could provide you with good returns while another may be doing badly. However, it is difficult to predict which will do well – or badly – at any particular time, so mixing asset classes together and having exposure to a little bit of each can help balance out the individual peaks and troughs. Your age, your financial position and your attitude to risk are all crucial considerations to get the proportions right and build the most appropriate portfolio. Contact GMP Independent Financial Advisers LLP to help you achieve the right mix.