Why asset allocation matters to investors

Dafferns Wealth

Investing is an uncertain pursuit, as you have to carefully navigate an ever-changing financial climate.

Perhaps the only certainty is that the value of your investments will go up as well as down, so it’s really important that you allocate your assets carefully to help you stay on course.

So what key issues should you be considering when you’re making these crucial decisions?

Exposure to risk
If your portfolio is based around only a few asset classes, you could lose large sums of money if any of these experience a downturn.

It’s therefore really important to diversify your portfolio across different asset classes*, so you can limit your exposure to risk in the event of a downturn and preserve your capital even during the most challenging times.

Maximising your returns
You can potentially achieve higher returns if you optimise your portfolio around the best performing options, so you’re able to take advantage of growth in certain markets and move away from weaker alternatives.

Make sure your portfolio matches your goals
It’s important that your investment portfolio reflects your wider financial objectives. Perhaps you want to send your child to private school or university, or maybe you’re looking to buy a second home or save up for retirement.

By thinking about the spread of your assets through this lens, you can build a portfolio that helps you work towards and achieve your specific objectives.

Adapting as circumstances change
Your investment portfolio doesn’t operate in a vacuum. In fact, it can be affected by countless factors way beyond your control, from economic shifts to political upheaval at home and abroad.

With that in mind, it’s really important to be flexible and adjust your portfolio when it’s appropriate to do so.

However, it’s crucial that you don’t panic in the face of market movements, as making impulsive decisions could backfire on you. Think carefully and strategically about adjusting your asset allocation and keep a firm eye on the long-term, and stay informed so you can respond to both opportunities and risks in the right way.

Your age
If you’re five years away from retirement, you might have a different appetite for risk than someone who’s forty years off stopping work.

So if you’re a younger investor, you potentially may be able to afford to favour higher-risk, higher-reward assets such as stocks, whereas an older person might prefer safer alternatives.

Creating and managing a lucrative investment portfolio can seem a daunting task, particularly if you’re new to investing.

We’re here to guide you throughout the entire process, so please get in touch with our team of friendly, specialist financial planners.

We’ll be happy to answer any questions you have, so you can get started on this exciting and potentially lucrative journey.

*Asset class: Investment categories for diversification in financial planning

The value of investments are not guaranteed.