Pension Advice Bristol

Academic studies, eg by Brinson, Bonnet and Beebower in 1986 and 1991, show that asset portion is the single most important factor in determining the returns of an investment portfolio. Other variables, such as fund selection and market timing are generally less important than being in the right asset class in the right time.

There are actually four major asset classes: cash, fixed interest, equities and property. Other asset classes as used by some asset allocators are just sub-sets of the four main classes.

The main benefit of spreading your money happens because historically different assets behave differently. This is called correlation. Over the extended, evidence shows that cash carries a very low correlation with equities and property; that property contains a higher correlation with equities; which equities have low correlation with fixed interest. Nevertheless, correlations between sub-classes, which include between emerging markets together with developed markets or government bonds and junk provides, are much less reliable, with major variations across different timescales.

So how do you make asset allocation meet your needs exactly? There are lots of sophisticated models out there, with asset allocation optimisers internet and various stochastic designs available. There are also model portfolios for individuals within certain age bands and in many cases automated portfolio generators, based on your answers to a couple of simple questions.

My view is that these things create a pseudo-scientific veneer when solutions is a degree of common-sense in applying fairly basic rules. If you use asset allocation being a basic guide to dividing your capital between the four asset classes, you will not go far wrong. But using 'asset allocation optimisers' on a wide array of sub-classes of assets could generate much more risk than intended.

Start by performing exercises how much you currently have in every one of the four asset classes. That you can do this by yourself or with your financial adviser. Include every thing, including your pension proper rights, as they should count as an "investment" in the permanent interest section. Your home may be a big part of your wealth but you need it to live in, to make sure you should probably focus on your free assets. Any other properties you possess should be included nevertheless.

Next, project your future needs for cash from your investments, coming up with the annual schedule showing genital herpes virus treatments expect to withdraw. This may be a best guess but it's a good starting point and when your need for cash at certain points is vital, this will significantly have an impact on your asset allocation.

Next that, take into account your attitude to chance, your age and ones investment timescales. All a lot of these will impact upon ones allocation decisions.

As time passes, your needs may change since you move through various concentrations of life. This may require a re-appraisal of your asset allocation. Similarly, there's the issue of rebalancing if considered one of your asset classes booms and becomes a larger proportion of your wealth that's using kilter with your model. Reviewing regularly with your financial adviser is sensible but rebalance only if there is a significant change inside portfolio balance and you sense it is right. Bristol Pension Advice , Bristol Pension Advice , Pension Advice Bristol