Investment Advice – Asset Allocation

Managing risk is one of the most import jobs that any investor has to deal with. Taking too much risk could mean disaster for you financially, while not taking enough risk could mean that available dividends are missed. There are many different ways to allocate assets in a portfolio to produce different results for the investor.

Fundamentally, an investor needs to decide exactly how to allocate a portfolio with stocks, equity funds and bonds. Where an investor prefers a total equity portfolio to receive superior growth probabilities, others will only invest in fixed-income options to avoid the risks of the stock market. It is rare that an investor will use one extreme or the other, but will decide on somewhere in between for their own portfolio.

For most investors, a generalized balance anywhere from 40 – 60% allocation is typically a good start for your investment profile. With a little education and some examination, your portfolio may change slightly with time, but keep in mind that too much change could mean missed opportunities for long-term results. These balances will change as your lifestyle changes depending on your risk outlook. Usually the balance can be broken down with lifestyle changes as follows:

 Young, single, free-living: Cash 10 % / Bonds 10% / Equities 80%

 Couples thinking about family: Cash 20% / Bonds 10% / Equities 70%

 Parents of young children: Cash 20% / Bonds 10% / Equities 70%

 Parents of university age children: Cash 20% / Bonds 20% / Equities 60%

 Empty Nesters: Cash 20% / Bonds 30% / Equities 50%

 Retired: Cash 20% / Bonds 30% / Equities 50%

There are a number of income-producing investments available that one should review before making a final decision on any portfolio. With careful consideration, you should revel in the fact that you took the time to examine your options carefully and made the financial choices that were best for you and your family.

 Guaranteed Income Bonds – low risk single premium bonds with set terms, are taxed as life insurance products

 High Income Bonds – single premium insurance bonds that have set terms of 3-5 years and are linked to 1 or more stock markets, can reap more benefits but also create more instability

 Corporate Bonds – issues by public companies, are rated according to their financial security and can be held in an ISA

 With Profits Bonds – low risk investments, consist of a variety of investments, enlists in ‘exit penalties’ for those who want to exit a fund early, policyholders can take annual withdrawals up to 5% for a maximum of 20 years without immediate taxation liabilities

 Distribution Bonds – low risk, pay quarterly or semi-annually, are a combination of shares and fixed-interest securities

 Equity Income Bonds – invest mainly in shares, but can include some fixed income securities, may have low dividends to start but have the potential to increase over the course of time due to the company’s increase in business and share distribution