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How to get the right investment mix

Daniel Lane

Lots of white mice, easy on the flumps and absolutely no aniseed balls. My choices at the pick’n’mix stand rarely change. You probably have one or two similar rules, give or take a few jelly snakes.

Whatever your sugary preferences are, the real art is in finding the right selection - variety will keep you chomping away but too much of a good thing and you’re in trouble.

Your portfolio may have fewer fizzy cola bottles but getting the right mix is just as important. More influential than your fund managers and sector coverage is the overall blend of assets you hold. This mix has a greater impact on your returns than anything else1.

Here are three things to think about to help your assets stay sweet, not sickly:

1. How long are you investing for?

When you need your money and how much you want to have are right up there in terms of what to consider. A 23 year-old saving for a house deposit over 10 years will have very different priorities than a 63 year-old approaching retirement.

Often, younger investors will accept more risk in their portfolios because they have time for things to grow, even if they are volatile along the way. Older investors might not want to take as much risk just before retirement – the chance of short-term dips in the portfolio’s value may not be worth it if you need the money soon.

2. Risk’n’reward

Assets like equities, bonds, cash and commodities all come with their own level of risk. It’s always good to find out your own tolerance and choose the best combination of assets to suit you.

Risk should work in tandem with your personal financial goals too. If you have particularly ambitious objectives, often you’ll need higher risk assets to get you on the path to reaching them. On the other hand, if you’re just not comfortable with higher risk assets, you might have to adjust your expectations for growth or the time you’ll need to get there.

3. Do it for me, do it with me, let me do it

Once you’re clear on all of the above the next step is to actually get investing. We can help you work out a blend of assets that might be helpful for you. Depending on how involved you want to get, we’ve got the tools at hand.

Remember, the goal is to mix and match your funds to meet your preferred asset allocation and risk level, all the while trying not to get too full on one in particular. Diversifying your portfolio means more than grabbing a handful though – each manager will have their own approach and speciality.

Listen to what the managers have to say about their investment processes, look at the regions of the world they invest in and the sectors they prefer, and try to get a balance that works for you

Source:

1 Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, Determinants of Portfolio Performance, The Financial Analysts Journal, July/August 1986.

Important Information: The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.