Question
What percentage of my investments should i put into shares, other assets and cash?
I want security, growth and income.Answer
Sorry to sound like a killjoy, but If you want total security then stick to cash and limit your holding to no more than £50,000 per institution to ensure you’re covered by the Financial Services Compensation Scheme (FSCS).
If you’re comfortable investing for 5-10 years or more and accept that you could lose money, albeit with the prospect of earning higher returns than cash longer term, then a mix of stockmarket, fixed interest, property and commodities investments would seem sensible.
Even so, I’d suggest keeping at least 20% in cash and more if you’ll need to cover any large upcoming expenditure. If you’re a taxpayer then consider using cash ISAs to ensure interest is paid tax-free.
Commodities don’t tend to be good for income, but I think the 10-20 year growth prospects are decent. I’d be very surprised if demand doesn’t rise faster than supply with the continued growth of emerging markets. Despite increased eco awareness, global demand for energy will almost certainly soar as the vast populations of China and India start to move from peddle power to the motor car. These cultures also like to spend some of their new found wealth on gold jewellery, which should boost demand. So while commodities are volatile and not suited to income, I’d suggest holding around 10% of your portfolio in this area provided you’re happy with the potential timescales and volatility.
Stockmarkets can be well suited to income as dividends tend to rise over time (the recent credit crunch notwithstanding), but volatility can be high. Western stockmarkets tend to be the most reliable for dividends, but probably also have the bleakest outlook. I think emerging markets hold more promise over the next 10+ years, but will likely cause you more sleepless nights along the way.
Overall I’d suggest 25-40% in stockmarkets. Go global as well as UK, but in current climate a bias towards relatively cautious income funds along with absolute return funds would be prudent.
Fixed interest has had a good run, but appears to be running out of steam. While I’d avoid gilts right now, global investment grade bonds are probably still worthwhile. High yield bonds are also worth some exposure, but bear in mind that they tend to be correlated to stockmarkets. I’d suggest 15-20% in fixed interest.
I’d also suggest holding a similar amount in commercial property. After a couple of very difficult years the sector appears to be stabilising and prices have stated to rise in recent months. Commercial property should also be a good source of long term income, provided we don’t see an increase in tenants going bankrupt.
Asset allocation is very subjective and some don’t believe in it altogether – great if you can consistently predict the next years’ top performers, but I’ve yet to meet someone who can – I certainly can’t. The main thing is to avoid being over exposed to any one area, so if it gets hit you won’t lose your shirt.
You could consider a multi asset fund, tries to do the job for you, although if the manager invests in other funds (i.e. fund of funds) you could end up paying total annual charges of 2-3% or more, meaning the manager may have to run just to stand still.
What percentage of my investments should i put into shares, other assets and cash?
I want security, growth and income.Answer
Sorry to sound like a killjoy, but If you want total security then stick to cash and limit your holding to no more than £50,000 per institution to ensure you’re covered by the Financial Services Compensation Scheme (FSCS).
If you’re comfortable investing for 5-10 years or more and accept that you could lose money, albeit with the prospect of earning higher returns than cash longer term, then a mix of stockmarket, fixed interest, property and commodities investments would seem sensible.
Even so, I’d suggest keeping at least 20% in cash and more if you’ll need to cover any large upcoming expenditure. If you’re a taxpayer then consider using cash ISAs to ensure interest is paid tax-free.
Commodities don’t tend to be good for income, but I think the 10-20 year growth prospects are decent. I’d be very surprised if demand doesn’t rise faster than supply with the continued growth of emerging markets. Despite increased eco awareness, global demand for energy will almost certainly soar as the vast populations of China and India start to move from peddle power to the motor car. These cultures also like to spend some of their new found wealth on gold jewellery, which should boost demand. So while commodities are volatile and not suited to income, I’d suggest holding around 10% of your portfolio in this area provided you’re happy with the potential timescales and volatility.
Stockmarkets can be well suited to income as dividends tend to rise over time (the recent credit crunch notwithstanding), but volatility can be high. Western stockmarkets tend to be the most reliable for dividends, but probably also have the bleakest outlook. I think emerging markets hold more promise over the next 10+ years, but will likely cause you more sleepless nights along the way.
Overall I’d suggest 25-40% in stockmarkets. Go global as well as UK, but in current climate a bias towards relatively cautious income funds along with absolute return funds would be prudent.
Fixed interest has had a good run, but appears to be running out of steam. While I’d avoid gilts right now, global investment grade bonds are probably still worthwhile. High yield bonds are also worth some exposure, but bear in mind that they tend to be correlated to stockmarkets. I’d suggest 15-20% in fixed interest.
I’d also suggest holding a similar amount in commercial property. After a couple of very difficult years the sector appears to be stabilising and prices have stated to rise in recent months. Commercial property should also be a good source of long term income, provided we don’t see an increase in tenants going bankrupt.
Asset allocation is very subjective and some don’t believe in it altogether – great if you can consistently predict the next years’ top performers, but I’ve yet to meet someone who can – I certainly can’t. The main thing is to avoid being over exposed to any one area, so if it gets hit you won’t lose your shirt.
You could consider a multi asset fund, tries to do the job for you, although if the manager invests in other funds (i.e. fund of funds) you could end up paying total annual charges of 2-3% or more, meaning the manager may have to run just to stand still.
Read this Q and A at http://www.candidmoney.com/questions/question139.aspx
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