Drilling down further
All investors are different, and as with everything, there are personal preferences that come into play when constructing an investment portfolio. For example, in the shares segment of your portfolio, how much should be held in large companies, medium sized companies, or smaller companies? Similarly, should they be focussed on dividends (income) or more growth orientated? Finally, should they be UK companies or overseas?
Rebalancing your assets
Investors should also make a point to regularly review and rebalance the asset allocation in their portfolio, as not doing so can lead to distortions in the level of risk taken, which will impact returns over time.
For example, assets in the 'low risk income portfolio' above are allocated as follows: cash 10%, bonds 60%, property 5%, shares 20% and commodities 5%. If shares rose 20% in value and bonds fell 6.5% over the course of a year, shares would then account for 24% of the portfolio and bonds 56%. If the portfolio is not rebalanced, the asset allocation (and the risk you are taking) will distort, and the investment goal you are pursuing will be harder to achieve. In this scenario, a low risk income investor is starting to take more risk than they were initially comfortable with.
Let the experts do the hard work for you
If you don't feel comfortable or haven't got the time to allocate your own asset types, the three funds of funds run by our sister company, Sharefunds, provide a solution. By investing in a wide variety of investments, they aim to cost-effectively spread risk and take care of asset allocation on behalf of investors. All you need to do is indicate your attitude to risk and investment objective: