Considerations for your portfolio

Another important term to understand in investing is asset allocation, some say it is like dressing for all weathers. Whatever lies ahead – inflation, deflation, market crashes and bursting bubbles – you have spread your investments wide enough to cope with whatever is thrown at them. Many people split their portfolios between the five main asset classes:

Cash e.g. bank account savings
Bonds e.g. government or corporate loans
Equities e.g. shares in companies
Property e.g. residential or commercial
Commodities e.g. gold, oil, wheat and the like

Many commentators describe asset allocation as the most important investment decision you’ll make. Your mix of assets heavily influences the level of risk and reward you can expect, and how your portfolio will react in different market conditions.

Another really useful tool for the management of your investments or portfolio is what financial managers tend to call rebalancing.  Imagine a portfolio that starts off having a split of 50:50 between equity and bonds. In the course of a year it is possible that your equity investments rises by 10% and your bonds could fall by 10%. Your portfolio would now be  55% equity and 45% bond, it that trend continued over an number of years without any rebalancing, your portfolio could become far more equity-biased than originally intended, and so more exposed to risk that you had not planned for .

An annual meeting with your independent Financial advisor is a good way of making sure you have checked in on your portfolio and rebalanced your investment resetting your portfolio’s asset allocation to maintain your acceptable exposure to risk. Occasionally you might want to sell some of the outperforming assets and spend the cash liberated on buying more of the underperforming ones, or investing in ISAs to maximise your tax allowances. Enables IFA’s can help you choose your asset allocation and rebalance.

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It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE