How can I allocate my assets effectively?

How can you best put your money to work? Choosing assets to invest in is crucial when crafting an effective portfolio which moves you towards your financial goals. Yet discerning the unique traits of different assets (e.g. equities and bonds) can be challenging, and the precise mixture you should adopt may not be clear. Below, our financial planning team at WMM outlines some of the key principles to consider when putting the building blocks of your portfolio together.


What is asset allocation?

Asset allocation is the process of choosing various assets for your portfolio – in accordance with your risk tolerance, investment strategy and financial goals. The two primary assets in most portfolios are fixed-income (bonds) and equities (i.e. stocks and shares). However, some people might also invest in commodities like gold, or real estate such as Buy To Lets.


What are some example asset allocations?

Broadly speaking, asset allocation involves identifying what portion of your portfolio will be set apart for different asset types. Your risk tolerance will play a big role here. For instance, a more “cautious” investor may opt for an asset allocation of 80% fixed-income and 20% equities. This prioritises the preservation of capital overgrowth, typically involving less risk. However, a more “adventurous” investor may choose the opposite: 80% equities and 20% fixed-income, or even 100% equities. This opens up more growth potential but involves greater investment risk.


What is internal asset allocation?

Allocating assets is not simply about equity-bond ratios within a portfolio. You also need to find out how to choose assets within these various classes. Investing in equities, for instance, may involve spreading out across a range of companies, sectors, industries, countries and regions. For instance, if you want a portfolio of 80% equities, how should this 80% be apportioned? The greater your diversification across countries and sectors, the less your portfolio will be affected if one market ‘crashes’.


How do I choose assets in line with my values?

Increasingly, investors want to choose assets which also align with their values. Perhaps you want to prioritise businesses in your portfolio if they are engaged in environmental protection, also avoiding those engaged in unethical activities (e.g. sweatshop labour). Here, your financial adviser can help you apply ESG (Environmental, Social and Governance) criteria to your list of possible assets. This helps you identify companies which facilitate good causes such as gender boardroom equality, fair pay, safe working conditions for workers, carbon neutrality and/or conservation efforts.


How do I build an effective asset allocation?

Your investment horizon is important when building a portfolio. How long until you will need the money? Generally speaking, the shorter your investment horizon, the more cautious your asset allocation should be. Your goals and values also should be taken into account. However, it is also wise to consider cost efficiency and performance.

Various fees are involved when investing in most asset classes – such as investment platform fees, trading fees, spread fees, exit fees and account inactivity fees. Regardless of your asset allocation, make sure you find a platform that keeps your costs low (without compromising on performance). Also, make sure your assets are contained within a tax-efficient portfolio. Your ISA, for instance, allows you to generate capital gains and dividends without tax. Investments within a pension are also tax-free until you retire.



Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469


This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).