Investment & Financial Planning

How do we make it work for you?

Asset Allocation

Once we understand your tolerance to investment risk we can then begin the process of determining how we can structure a portfolio to ensure optimum returns within the parameters set by the risk profiling ‘comfort zone’. Let’s look at a couple of facts.

Different asset types tend to rise and fall in value at different times and for an investment portfolio to be successful this diversification is by far the most important aspect of the investment process. Our portfolios consist of three basic asset classes:-

• Equities (Stocks and Shares)
• Fixed Income Securities (Bonds)
• Property

Cash is not included in any of our portfolios as all required cash is held in higher interest accounts away from the invested capital to maximise flexibility and returns.

Having established the correct allocation between equity and interest bearing securities for your portfolio, we then needed to apply modern techniques to ensure the greatest probability that you will earn the return that is appropriate for the level of risk that you are willing to assume. In doing so, we have placed our reliance in principles established by a collection of actual evidence and theory from the academic disciplines of economics and finance. This is a body of work referred to as Modern Portfolio Theory (MPT).

Portfolio Selection

So far we have established our clients tolerance to risk and then proposed the asset allocation that is most likely to help clients meet their objectives within acceptable levels of risk.
We have developed a series of portfolios, each with a differing asset allocation and each portfolio contains a diversified range of funds within each asset class, where possible being institutional asset class funds as opposed to retail actively managed investment funds.

Monitoring and Rebalancing

Because different asset classes grow at different rates of return, it is necessary to periodically rebalance a portfolio to maintain the target asset mix that is necessary to meet your risk profile. By rebalancing whenever portfolio allocations migrate outside an allowable strategic range, you are enforcing a ‘buy low sell high’ discipline which enhances the long term return for the portfolio. Generally we recommend that rebalancing be considered quarterly.

Selling assets that are performing well and buying asset classes that are performing poorly may seem to contradict common sense. Rebalancing by definition will involve ‘buying low’ and ‘selling high’. Many investors make the costly mistake of doing the opposite, which can result in lower returns in the long run. Rebalancing allows the portfolio to take advantage of favourable time periods for each asset class, which can often result in a steadier, less volatile performance.