When it comes to investing successfully, it is not just about selecting the “best” fund or getting the timing right. One of the most critical and misunderstood elements of successful investing is asset allocation.
Your mix of investments, rather than the selection of individual shares, has a far greater impact on the performance of your portfolio in the long term. At Ward Goodman, we assist our clients throughout Dorset and beyond with the creation of portfolios that meet their risk and growth objectives, ensuring that their investments are right for them. Read our main Investment Planning guide.
What Is Asset Allocation?
Q: What does asset allocation actually mean?
A: Asset allocation is the process of diversifying your investments across different asset classes. The different asset classes include equities, bonds, cash, and alternative investments.
The different asset classes have different investment objectives. Some have growth objectives, while others have stability and income objectives.
The Main Asset Classes Explained
Understanding the role of each asset class is key to building a balanced portfolio.
| Asset Class | Primary Role | Risk Level |
| Equities (shares) | Long-term growth | Higher volatility |
| Bonds | Income and stability | Moderate risk |
| Cash | Capital preservation and liquidity | Low return, low risk |
| Alternatives (property, infrastructure, etc.) | Diversification and inflation protection | Varies by type |
A well-diversified portfolio blends these components to create smoother long-term performance.
Why Asset Allocation Matters More Than Stock Picking
Investors tend to be very focused on individual investments, but studies have shown that overall allocation may have a greater effect on investment performance.
A well-thought-out allocation can help investors to:
- Manage the ups and downs of the market
- Help minimise the effects of a downturn in one area
- Help deliver more consistent investment performance
- Match the level of risk with personal goals
Asset allocation avoids the guessing game of which investment will do the best next year.
Matching Allocation to Your Risk Profile
Q: Does everyone need the same mix of assets?
A: No. Asset allocation should reflect your risk tolerance, time horizon, and financial objectives.
| Investor Profile | Typical Allocation Focus |
| Growth-focused | Higher equity exposure for long-term gains |
| Balanced | Mix of equities and bonds for growth with stability |
| Cautious | Greater allocation to bonds and cash to reduce volatility |
| Income-focused | Blend of bonds, dividend equities, and income assets |
The “right” balance is personal, not determined by market trends.
The Power of Diversification
Diversification refers to the act of investing in different sectors, regions, and asset classes. The idea behind investing is that different investments will perform well at different times.
For example:
- Equities can perform well during economic growth
- Bonds can perform well during economic uncertainty
- Property and infrastructure can perform well during periods of inflation
Having different investments means that there is less chance that one market event will have a large impact on your portfolio.
Rebalancing: Keeping Your Strategy on Track
Over time, market movements can cause your portfolio to drift away from its original allocation.
Q: What is rebalancing?
A: Rebalancing means making changes to your portfolio to return it to your original mix, usually by selling some of the assets that have grown and investing more in those that have underperformed.
This helps to:
- Keep your level of risk at the level you want
- Realise the gains of the better-performing assets
- Prevent your portfolio from becoming too risky without you realising it
Reviewing your portfolio regularly is crucial.
Avoiding Common Asset Allocation Mistakes
Investors sometimes fall into traps that undermine long-term performance.
Common issues include:
- Being too concentrated in one asset or sector
- Chasing recent market winners
- Becoming too cautious after market falls
- Ignoring portfolio drift over time
A disciplined approach helps avoid emotional decision-making.
How Professional Guidance Adds Value
Asset allocation involves much more than just figuring out the percentages. It involves understanding the interplay between different assets, the impact of economic conditions on markets, and the changing nature of your personal circumstances.
By using a financial planner, you can:
- Establish an appropriate risk level
- Create a diversified portfolio
- Rebalance the portfolio as your life stages change
- Stay disciplined through market fluctuations
At Ward Goodman, we concentrate on building portfolios that provide optimal opportunities and protection, with risk being taken thoughtfully and purposefully.
Building a Portfolio That Works Together
Q: What is the key to successful asset allocation?
A: Ensuring every part of your portfolio plays a role and supports your long-term objectives.
Best practices include:
- Reviewing allocation regularly
- Diversifying across assets and regions
- Rebalancing when needed
- Avoiding short-term reactionary changes
- Aligning investments with your time horizon and income needs
Ready to Take a Structured Approach to Investing?
Investing successfully is not about guesswork. It is about creating an investment portfolio where all the pieces work together to manage risk and achieve long-term growth.
Whether you’re building wealth, planning for retirement, or simply evaluating your current investment strategy, Ward Goodman can help you create an asset allocation strategy that suits your needs and risk tolerance.
Learn more about Investment Planning or schedule a consultation with one of our investment professionals today.
