Asset allocation is a big deal

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Possibly the biggest influence on your investment returns is your portfolio’s asset allocation, or how much of your money is invested in such things as shares, property, fixed interest and cash. Each asset class comes with its own risks and each will provide varying returns from year to year.

One approach to investing is to maintain a set asset allocation, regardless of what share markets are doing, through both good and bad time. This allows your portfolio to ride through periods of poor market returns without the want to make knee-jerk reactions resulting in panic selling of growth assets at precisely the wrong time. This type of investment approach helps take your emotions out of the long term process.

It is important to review your portfolio regularly and rebalance when required to maintain your original asset allocation. This can help reducing both risk and volatility. If left unchecked your portfolio could, due to share market and investment movement look very different to what you originally intended. The frequency of rebalancing will depend on the type of investments you hold, and the investment product being used.

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