Asset Allocation

This refers to the mix of investments, in terms of shares, property, cash and fixed interest that you include in your portfolio. Asset allocation is the main influence on the investment returns you will receive. It also determines the amount of risk you are exposed to.

Over the long term, shares and property can be expected to produce the highest returns. However, the returns from one year to the next are quite uncertain. They may go up in value, or they may go down. This greater fluctuation in their value means shares and property are more risky.

Fixed interest investments such as bonds are less risky. Changing interest rates can affect their value, so they can still go up and down in value, but their prices are much more stable than shares or property. Over the long term, fixed interest provides lower returns.

Cash is the least risky asset class, but also produces the lowest returns.

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