Investing: the best free asset allocation tool
Some of the most popular questions I'm asked by both DIY investors and national press journalists include:
- 'Where should I invest my money?'
- 'How much should I invest in bonds?' and...
- 'How much should I invest in equities?
- 'Which countries should I invest in?
This article (and the tool within it) finally answers all those questions in seconds.
The benefits of a diversified asset allocation
The problem we are really trying to solve is portfolio asset allocation. Whether you are using tracker funds, such as ETFs, or active funds (those with a fund manager) it is advisable to build a diversified portfolio. Diversification helps you avoid 'putting all your eggs in one basket'. There are a lot of ways to diversify a portfolio (by asset type, geography and sector type) to reduce being overexposed to a single asset or asset class. By diversifying your portfolio you ensure that all of its constituents do not move in tandem. So for example if the part of your portfolio exposed to UK company shares falls in value then the portion of your portfolio exposed to bonds may in fact rise. This will offset some of the losses and reduce the investment risk within your portfolio. So what is the optimum portfolio asset allocation and how do you build an investment portfolio?
Best free investment Asset allocation tool
Building a diversified portfolio has been notoriously difficult for investors. In order to solve that problem we spent a lot of time and money building our free investment asset allocation tool. The best investment asset allocation tool should be based upon as much quant research as possible and produce an asset allocation with a strong performance track record.
To do this we based the asset allocation model upon Vanguard's hugely successful Vanguard Lifestrategy fund range. The asset allocation calculator then suggests an example asset allocation based upon your attitude to risk and age. Obviously the results are not to be deemed as advice or a personalised recommendation but it does show you how one of the leading investment management companies in the world invests billions of pounds of investors' money.
So based on my own age and attitude to risk the portfolio asset allocation tool suggested the following example portfolio:
- UK Equities 18%
- Global Fixed Interest 26%
- European Equities 10%
- Japanese Equities 5%
- Asia Pacific Equities 2%
- North American Equities 27%
- American Emerging Equities 0%
- European Emerging Equities 0%
- UK Gilts 4%
- UK Index-Linked 3%
- UK Corporate Fixed Interest 2%
- Global Emerging Market Equities 3%
What are the best investments to buy?
Once you decide upon an asset allocation you then need to buy the underlying investments. While you could invest in individual assets such as company shares, by investing in funds (passive or active) you benefit from further diversification as each fund will hold shares, for example, in hundreds of companies in different sectors. If you want to find a proven way to choose investment funds themselves then I have produced a short series of emails to show you.
Neither MoneytotheMasses.com/80-20 Investor nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.
Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.
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