How to spread investment portfolio for best returns

Investors who have adopted a single-strategy approach to investments have in many cases been shocked by the uncertainty and often volatility of their returns, especially recently.

Investors who have adopted a single-strategy approach to investments have in many cases been shocked by the uncertainty and often volatility of their returns, especially recently.

It is very hard to predict which asset class is going to perform best yet many of us do this and get severely burned.

Diversification is the surest way of reducing risk and ensuring smoother sailing in the choppy seas of investment. Personal circumstances will determine your allocation to the different asset classes.

For example, investing to maintain one's lifestyle in retirement requires a different investment strategy to those attempting to create wealth.

Deciding what percentage to allocate to which asset class requires careful consideration of various factors such as time horizon, expectation of return, appetite for volatility and liquidity and income needs.

Some basic principles

l Set goals - understand what you are trying to achieve with each investment you make.

l Understand time horizons - the less time you have to commit to your investment, the less risk you can afford to take. If investing for growth, be prepared to allocate more to higher risk asset classes, but be committed to at least six or seven years.

l Be realistic - a conservative investment is not going to double in value every five years and an aggressive portfolio is not going to give you a smooth ride.

l Be patient - if you are taking a long-term view, don't worry about short-term fluctuations in markets and currencies.

l Be proactive - re-balance a portfolio if the percentages originally allocated to your chosen asset classes are out of kilter. This ensures you continually lock in profits of an asset class that has become too heavy because of good performance.

l Knowledge - there is no excuse for investors to claim they did not understand before renewing or making a new investment. Intermediaries are obliged in terms of the Fais Act to make full disclosures on risk levels, charges, commissions, etc. Understand all the implications before you sign.

l Look for security - ensure you are with a branded organisation.

l Shop around - if you don't feel comfortable with any of the advice, don't be afraid to consult someone else.

l Plan for tax and estate duty - there are many ways to reduce these and enhance growth of your investments.

l Bryan Hirsch is a director of Pioneer Financial Planning. Visit www.pioneer.co.za

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