Asset allocation depends on your goals, your attitude to risk, your capacity for loss and market conditions. Understanding investment risk and determining what level of risk you feel comfortable with before you invest is an important part of the investment decision process. Potential returns available from different kinds of investment, and the risks involved, change over time as a result of economic, political and regulatory developments, as well as a host of other factors.
Spreading your money across different investment types and sectors
If we could see into the future, there would be no need to diversify our investments. We could merely choose a date when we needed our money back, then select the investment that would provide the highest return to that date.
Taking a more diverse approach to asset allocation
Investment trusts are a well-established way of investing. Many investors prefer to invest in a fund rather than by picking individual stocks, shares or other assets. Funds allow you to diversify your portfolio easily, as well as giving you the chance to benefit from the expertise of fund managers.
Staying disciplined and sticking to your plan is key
The overall direction of developed stock markets is a relentless and continual rise in value over the very long term, punctuated by corrections. It’s important not to let global uncertainties affect your financial planning for the years ahead. Individuals who stop their investment planning, particularly during market downturns, can often miss out on opportunities to invest at lower prices.
If low interest rates continue, it really matters where you invest your money. Investing for income means choosing assets that are able to provide you with a regular income. This is in contrast to investing for growth, which focuses on how much your assets could gain in value.
Investing through a tax-efficient wrapper, such as an Individual Savings Account (ISA), can give a significant boost to an overall investment portfolio, but it should be blended with an appropriate investment strategy to give the best outcome.
Maximise your wealth creation – don’t miss the deadline
Whatever you’re putting money aside for, there’s likely to be a role for Individual Saving Accounts, or ‘ISAs’. An ISA is a way of holding savings or investments without paying personal tax on interest received or on the growth of your investment.
Collective investment schemes – also known as ‘pooled investment funds’ – are a way of combining sums of money from many people into a large fund spread across many investments and managed by a professional fund manager.
Market index following the overall performance of a selection of investments
Tracker funds and exchange-traded funds (ETFs) are investments that aim to mirror the performance of a market index. A market index follows the overall performance of a selection of investments. The FTSE 100 is an example of a market index – it includes the 100 companies with the largest value on the London Stock Exchange.
