Asset Allocation

“The appropriate asset allocation depends on the individual investor’s time horizon, financial goals and risk tolerance.”

How do you allocate your portfolio across asset classes?

The main portfolio asset classes are cash, equities, bonds and real estate.

First, consider the investment returns of the different classes – they vary under different market conditions. Investing in more than one asset class will reduce the risk of loss and portfolio returns will have a ‘smoother ride’. Statistically we would say the returns have a smaller standard deviation. If the returns of one asset class in a portfolio fall it should be possible to counteract your lower returns or losses in that class with better or steadier investment returns in another.

Protection against inflation also varies by asset class, as do tax considerations. In general tax considerations should be secondary to the underlying risk return features of the investment. Investors should seek tailored personal advice on their tax position.

The appropriate asset allocation depends on the individual investor’s time horizon, financial goals and risk tolerance. There are important trade-offs between the goals investors have in each respect and the investor’s level of sophistication also informs the appropriate allocation.

The following table summarises the capital loss, inflation protection, price volatility and return characteristics of the four fundamental asset classes. The ratings are high-level generalisations which abstract from the potential for ratings of individual securities or assets within each class to vary.

Asset ClassPrice VolatilityRisk of permanent capital lossPotential protection against inflationPotential investment returns
Cash including term depositsNilNilNilLow
Fixed Interest SecuritiesMediumMediumLowMedium
PropertyHigh - but apparently and deceptively low as property prices are not quoted oftenHIghGoodHigh

For a discussion with one of our Private Wealth Advisers about asset allocation in your portfolio call 1300 788 568 to speak to one of our Private Wealth Advisers.

Clime Private Wealth Pty Limited | ABN 87 617 235 168 Is a Corporate Authorised Representative | CAR 001263076 of Clime Asset Management Pty Limited | AFSL 221146

The information provided on this webpage and the rest of is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein. Please consider our Information Memorandum, Product Disclosure Statement and Financial Services Guide before investing in one of our products. Past performance is no guarantee of future returns.
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