There are many schools of thought on this but it is generally agreed that an investment portfolio (by which is meant any group of investments) should be diversified. In other words they should be spread out amongst the asset classes.
Why? Different asset classes react differently to changing market conditions. If you have your investments spread out amongst different asset classes, it is likely that at any given time, some may be rising while others may be falling. This helps to reduce the investment risk, but it can also act to hold back the overall return. As to how much to diversify and what asset classes to use, this is comes back working out what level of risk the client wishes to take. Different portfolios can be worked out to cater for different tolerances of risk.
All of us are invested in one asset class or many. We may have money on deposit in our savings. That is one asset class. If interest rates go up, it benefits. If they go down, it suffers. We may own residential property. The value of properties can go up or down. Many of us have some sort of pension investments. Often these are with some type of Managed Fund which has an investment manager in charge of working out which asset classes to put your money into, and who is actively trying to increase the value of your investment.
No comments:
Post a Comment