Posted by – June 27, 2011
With the fluctuating market it can be hard to know where the best investments are. Some professionals point you in one direction, while others lead you elsewhere. So it comes down to you, evaluating the market risk and your investment options. This may sound daunting but with a few easy steps it’s not as tough as it sounds.
Firstly think about your management style. There are two major styles which are active management and passive management. The first being, you believe in the ability of your portfolio manager to pick up investments that will outperform the market. The second is investing in long term projects which you can leave to grow over time.
The second item to take into consideration is asset allocation. This ultimately asks the question of what you want to purchase with your savings. You can place assets in cash, growth products or fixed income, but be sure to have an idea of the percentage of savings that’s invested. Also be sure to understand every aspect of what is being proposed.
Remember to keep on track with your investment and understand what’s going on with your money. There will be ongoing fees and transaction costs, but these vary in price, depending on the investment you made. You may have completed the deal, but it’s important to keep in mind how your investment is and the risk assessment values.
Posted by – June 22, 2011
Working out the investment risk of a portfolio is an important aspect of the job. It will help you to know your future plans and will change the strategy you have in place. But after deciding on the how much risk is acceptable you can move into using the risk pyramid. This will help balance your assets and gain more control.
The risk pyramid can be looked at as an asset allocation tool. It has three tiers and can help to diversify an investor’s portfolio.
- The base of the pyramid represents the investments which support the items above. They should be low risk investments and have returns which are easily predicted. These include government bonds and money market/bank accounts.
- The middle section of the pyramid will include the medium risk investments. These offer a stable return but will continue to allow for capital appreciation. They should be relatively safe, but riskier than those below. These include investments in real estate and equity mutual funds.
- The highest point of the pyramid will contain the high risk investments. This is the smallest area of the pyramid and there should be less of these in the portfolio.
This layout is just an example and the risk pyramid should be customized to your preferences. Those with more interest in high risk investments can increase the summit of the pyramid, but should take away only enough below to cope with the risk.