Investment Strategies

What is 'Asset Allocation'?
You should invest across a broad range of securities, giving you various levels of risk or volatility, and providing exposure to different types of industries. The important thing, however, is to make sure you diversify across a number of asset classes. That is, invest in different types of assets. This is what is known as 'asset allocation'.

One of the benefits of sound asset allocation is that the volatility of returns can be lowered by investing in securities for which the respective returns don’t appear to move in step over time. These are known as investments having a low correlation. If the returns from investments move up and down over time in a fairly orderly fashion, they are said to be of high correlation.

Tips for Diversification
Here are some suggestions that can be used when you are looking at diversifying your investment portfolio:

  1. Multiple Classes - Make sure you invest in more than one class of assets: Exposure to different asset classes will reduce your overall risk.

  2. Diversify in Classes - Diversify within each of the asset classes: Shares should always be diversified by country as well as by industry. Make sure that you have plenty of choice in terms of risk level in return within each of the asset classes chosen.

  3. Tax & Cost - Invest in tax efficient and cost efficient managed schemes: Most private investors in the USA need to move into investments with managed funds to achieve proper diversification in overseas companies. If you choose the proper funds a lot of the work of diversification will be done for you.

Watch for Market Timing and Financing
Timing the movement in and out of your investments is critical. In property, the catch cry is always location, location, and location. What people need to realise is that location in some cases come second to timing. Timing is most important in any type of investment. You may buy the best-looking property in the best location, but if you buy at the wrong time of the market – you will lose.

When investing you should buy when prices are low and sell when prices are high because of the movement in cycles. This is not always easy and those who go into investment scenarios with the intention of working it short-term for quick profits will sometimes win, but most times they lose.

Another thing that astute property investors put before location is financing. The right deal for financing can make all the difference on whether a profit or loss will result from a property investment deal.

What about Volatility?
The safest way to end up with more security when you are investing is to look at investments over the long-term. Volatility, which is the measure of how often and how much an investment moves up and down, is one of the critical factors in risks with investments. High volatile investments, such as shares, can go through all sorts of rises and falls over a period.

Low volatile investments, such as term deposits, produce a low return, but less risk. The good thing about moving into long-term investments is that the rises and falls usually even out over the period, so the risk is less.

Volatility generally is not a problem unless you are in the market to buy and sell regularly and may sometimes end up being forced to sell when the market is in a trough.

What is Dollar Cost Averaging?
Dollar cost averaging is based on the concept that in the long run if you have a disciplined approach to investing it will make you more money and cost less than an unstructured approach.

In other words, dollar cost averaging is a term given to the ability to drip feed your savings into some sort of investment vehicle, thus taking advantage of changing investment prices.

Many investors stay out of certain investment markets, such as the stock market, because of its volatility (the up and down movement). Dollar cost averaging allows you to ignore the volatility and in fact allows you to take advantage of it.