Comparing asset classes

Each asset class has its advantages and disadvantages.

The advantages and disadvantages of each asset class

In these unpredictable times, choosing which asset class to hold to secure a reasonable return is probably the most important investment decision of all. It will depend on what the investment is required to do, and the amount of risk the investor is prepared to take. It is important, however, to remember that all of the following asset types can form part of a healthy portfolio.

Equities have historically delivered higher returns over the longer term than others, but they can also pose greater risk to capital. Please remember prices may fluctuate and you may not get back your original investment.

Bonds can also be an attractive investment because they are generally lower risk than equities in that the coupon the bondholder receives is usually fixed and the price of bonds tends to be less volatile than equities.

Investors in a property fund need to be aware that some property funds invest in property company shares. These generally behave in a similar way to other equities and so may not be suitable if the investor is looking to diversify their portfolio. Alternatively, there are funds that invest in a mixture of actual physical properties, or bricks and mortar, that are, preferably, spread across different geographical locations.

What is the right mix?

Deciding on the right mix of equities, bonds and property to hold depends largely on the level of risk the investor is prepared to take. Please remember that it is important to seek out financial advice for one’s own particular investment circumstances. For those who are willing to take more risk in order to generate a higher return, their portfolio would probably lean more towards a larger holding in equities. For those seeking investment opportunities with relatively low risk, they may want to consider increasing the percentage of bonds they hold in relation to the percentage of equities.

Since no asset class is free from risk, holding a combination of bonds, equities and property can reduce the overall risk. This can provide a degree of stability if some markets fall.

An alternative is to invest in a multi-asset fund and let a fund manager decide on the right mix of asset classes to hold at any given time. However, in the same way that the risk from a particular asset performing badly is reduced by investing across several different types of assets, so, too, the rewards may be limited if a single asset performs particularly well.

The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested. Please note that past performance is not a guide to future performance. An investment in the fund may be linked to those risks normally associated with an investment in company shares or fixed income securities. This means that the price of the fund will fall as well as rise and you may not get back the original amount you invested. Any income earned by the fund will also vary. Please be aware, your investment may increase or decrease as a result of currency fluctuations.

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