Asset Allocation

The Benefits of Diversification

At Ord Minnett we believe investors should begin their investment strategy by choosing an appropriate asset allocation. That is, deciding on how best to spread capital across the key investment asset classes. Academic studies and experienced investment professionals widely accept that asset allocation is likely to be the predominant driver of the variation in an investor’s investment returns. Ords shares this belief strongly.

Tailored Investment Strategies

Ord Minnett’s professional team of Advisers use their expertise to guide our clients to develop an investment strategy aligned to their needs. The first step involves undertaking a thorough review of all your current lifestage circumstances and investment goals (including your cash-flow requirements and risk profile) to decide on the appropriate asset allocation. This process will establish how much of your capital is to be apportioned across the different asset classes including:

 

  • Cash
  • Fixed-interest securities, such as bank bills, term deposits and bonds
  • Shares, including domestic and international, ordinary and preference shares
  • Property
  • Alternative assets, such as hedge funds, commodities and private equity.

Because asset allocation decisions are paramount, by selecting the appropriate asset allocation, you should maximise the probability of successful investment outcomes and at a level of risk most suited to your objectives.

Managing Investment Risk with Diversification

At Ords, we seek to sensibly manage investment risk to ensure our clients are adequately rewarded with higher returns for the risks they undertake. Using the analysis of our Research Team and investment professionals, the primary way that we manage risk for our clients is by constructing carefully diversified portfolios. The following two types of diversification are of most importance:

 

  • Diversification across asset classes – asset allocation and 
  • Diversification within asset classes – security selection and portfolio construction.

Diversification involves thorough research, analysis and the use of the latest tools, techniques and investment theory to arrive at the best allocation of a client’s wealth among a range of investments. The aim is to maximise the probability of achieving stated investment goals while managing risk in a way that best suits the individual.

 

Sensible diversification reduces risk because when one or more of your investments may be delivering lower returns, other investments will be performing more strongly to offset those lower returns. The overall result is a portfolio that provides a more stable growth profile.

 

Spreading your wealth among a number of different investments means that while you may not achieve extraordinary gains from holding a few well-performing investments, neither will your portfolio’s performance be severely compromised by a single poorly performing investment.

Why Asset Allocation Works

The key to asset allocation is combining individual asset classes in the best proportions to obtain the optimal trade-off between risk and return. The goal is to combine assets with different risk and return profiles. If you diversify across similar investments, which all perform alike during similar economic and market conditions, then the benefits of diversification are reduced.

 

To explore how your portfolio can benefit from asset allocation, contact Ords' team of professional Advisers to build an investment strategy tailored for you.

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