The key to a balanced investment portfolio during financial market volatility is diversifying assets, according to a new report.
Most investors are rightly concerned about the swathes of red on stock market tickers wiping the value off their investments.
But there’s no need to worry if investors have worked hard on their asset allocation to ride out the storm, says Maike Currie, Investment Director for Personal Investing at Fidelity International.
He argues that over time asset classes have taken on a personality that defines how they react to market swings.
“Understanding that personality helps investors make sensible investment decisions,” he said. “Equities offer growth which is knocked back by a volatile market, while bonds tend to soldier on.
Firing on all cylinders
“Blending the long term outcomes of different assets determines how your portfolio performs over time, but every now and then investors should review their asset allocation to make sure everything is firing on all cylinders.”
Currie has listed five top tips for investors who want to check their asset allocation:
- Time is money – Younger investors can take more risks as they have longer to recover from downturns. Investment allocation changes the older you get, the less risks you can take because you are running out of time to put them right
- Set investment goals– Investors seeking growth will have a different strategy from those wanting income, so adjust your asset allocation according
- Check your comfort zone – Investors need to know their pain threshold so they can test their growth or income returns against the risk of specific markets
- Ignorance is not bliss – Making a plan and setting up a portfolio is not enough – investors have to review and action any results on a regular basis. Once a year is generally OK as too much tweaking is as bad as not enough. Don’t forget to build trading costs into your analysis as well
- Short of time? Investment firms have sorts of funds, from market trackers and fully managed through to self-managed. If you have a day job and a family, there’s no shame in outsourcing the fund management to an expert
“Professional fund managers will have an idea of how multi-asset funds perform year after year,” said Currie.
“The manager will shift assets around to give the best returns, while this could be a real headache for an individual investor.”
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