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Investment means placing your money to work to earn more money for you. However, investment is never an easy task. You will have to decide the amount to invest as well as develop an asset allocation strategy.
Asset allocation is the process of spreading your investments among different asset classes: equities, bonds, short-term instruments such as money market funds and these asset classes take turn to perform
Different asset class performs at different times
Source: Phillip Managed Account
Asset allocation is the primary determinant of both risk and return in many portfolios. Numerous studies have concluded that the percentage distribution of financial assets (cash, stocks, bonds, international, real estate, venture capital, and other investments) has accounted for much of the variability of a portfolio's return, while market timing and security selection typically account for a smaller percentage. A simple illustration will drive the point across:
This is our optimal asset allocation based on:
| Different Type of Portfolio |
Equity |
Bond |
Cash |
| Conservative Portfolio |
An investor who regards the need to minimize the chance of capital loss in any year as the most important consideration. He understands that this generally means less exposure to growth assets and will mean lower real returns in the long term. |
20% |
75% |
5% |
| Balanced Portfolio |
An investor who seeks a balance between higher returns and the chance of avoiding capital loss. He accepts that this trade off lessens both long term returns and the chance of a loss in any year. |
50% |
45% |
5% |
| Aggressive Portfolio |
An investor who pursues higher returns in the longer term by investing in growth assets. He fully accepts that investment returns will vary substantially from year to year and that there is a higher chance of capital loss in any one year. |
75%
|
20%
|
5% |
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