ASSET ALLOCATION

The investment asset allocation is simply the way in which your investment portfolio is diversified over the investment classes of property, shares, fixed interest and cash. We regard the asset allocation process as absolutely critical to the long term performance of investment portfolios and the most important aspect of our investment methodology.

Investors who are disciplined and stick to their asset allocation recommendations through the ups and downs of investment markets will achieve significant long term investment returns. By contrast, poor investment returns are achieved by people who have too short an investment time frame, or who panic and sell their investments when markets decline.

Please note that this does not mean that you are unable to access or cash in your investments. Early encashment of your investments may however result in you receiving lower investment returns than originally expected.

Our approach is to set recommended asset allocations for each investor risk profile and to identify a time frame in which the expected returns would be likely to be achieved for each of the profiles. These recommended asset allocations and time frames are based on research and recommendations provided by the research houses that we subscribe to.

The success of your asset allocation strategy is reliant upon two factors:

• You are able to live with volatility. This means that through understanding individual investment returns may go down as well as up, you are prepared to accept possible short term loss in value as part of the process of investing.
   
  
• You are willing to leave your investments in place. This means that through understanding the time frame applicable to your investor risk profile, you are willing to leave your investments in place for at least that length of time, despite any interim period of loss.

To ensure that the potential for loss is minimised, we regularly review the asset allocations for our recommended portfolios. We follow a dynamic approach and adjust these asset allocations, according to the economic outlook and our assessment of financial markets. These adjustments create our current asset allocation recommendations, which are then applied to your portfolio at each investment review.

Set out below are some typical asset allocations for different types of investors. The actual asset allocations that we recommend to you may vary according to market conditions and the economic outlook at the time we make our recommendations.

As it is inevitable that markets will produce negative investment returns at some stage, the risk and return profiles aim to control the volatility across your overall portfolio and therefore smooth out your investment returns over time.

As discussed above, your investment time frame is a critical factor. The likelihood of achieving the expected investment returns increases with the length of your investment time frame. Thus the greater the proportion of property and shares in a portfolio the longer your investment time frame should be. A larger proportion of growth assets, particularly shares, should also result in higher after tax investment returns over the longer term.