MAXIMISING RETURNS

Importance of mitigating key investment risks

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

Not only does asset allocation naturally spread risk, but it can also help you to boost your returns while maintaining, or even lowering, the level of risk of your portfolio. Portfolios can incorporate a wide range of different assets, all of which have their own characteristics, like cash, bonds, equities (shares in companies) and property.

Investments can go down as well as up, and these ups and downs can depend on the assets you’re invested in and how the markets are performing. Moreover, the 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. Diversification helps to address this uncertainty by combining several different investments.

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. Diversification helps to address this uncertainty by combining a number of different investments.