We’ve all heard the phrase “Don’t put all your eggs in one basket”. However, when it comes to investing, how many of you follow this useful piece of advice. I’m sure that across the country, people are having conversations in pubs, coffee shops, offices and factories which invariably include the phrase, “If I were you, I’d invest in ‘X’” ( You can replace X with whatever asset is in fashion at the time and has included property, shares, gilts and bonds at various times ).
However, is investing in one asset type and chasing the market for the ‘next big thing’ the best possible approach?
Many professional independent financial advisers adopt a different approach which involves spreading your money over a range of different investment types (or spreading your eggs over a number of different baskets). This approach is called asset allocation.
How many Eggs and How many Baskets?
The right mix of different investment types can depend on a number of different issues, including your attitude to risk, length of term to your goal (or retirement), and your age. It can be tough to ensure the right approach is taken, and a professional Independent Financial planner can help you with making sure you are following the right path.
Does asset allocation work?
There have been a number of academic studies highlighting the benefits of asset allocation and comparing this approach with investing in either one asset or not splitting the assets effectively. These scientific studies tend to confirm that asset allocation is more effective than utilising market timing (the market chasing approach).
However, it is important you discuss your thoughts with a professional adviser who can guide you in the right way to properly invest your money. It is also important to regularly review these provisions with your adviser to ensure that your funds are invested appropriately.