Join our community of smart investors

IC model asset allocation – Cautious

How to invest if you have a low appetite for risk
IC model asset allocation – Cautious

Key Characteristics

  • Low risk tolerance or appetite for risk
  • Likely to want to sell out of a large portion of their portfolio within 3-5 years
  • Retired investors with a lesser valued portfolio

Whether you’re getting started investing or you’re an old hand at playing the stock market, you can improve your returns – and take less risk – by choosing the right mix of investments.

To help you along, we’ve created three model asset allocations to suit investors that fall into each of the three main broad risk categories: Cautious, Medium Risk and Adventurous.


If you know you’re going to need to take out a significant portion of your money in three to five years, or you’re simply of a more conservative disposition, a Cautious portfolio could be the right strategy.



What’s in it?

Equities – 30%

Our Cautious asset allocation has 30 per cent in global shares; enough to give decent exposure to this powerful source of wealth creation but wary of the impact a stock market sell-off can have in the short term.

Fixed income – 55%

Our Cautious portfolio has 55 per cent in fixed income. This benchmark is based on how UK government bonds with various maturities have performed over time. To improve performance, in a managed portfolio based on this asset allocation, investors would also use other government bonds and corporate bonds.

Government bonds are a haven when stock markets sell off, in the past the increase in the price of the safest government bonds have offset losses for the stock market. Corporate bonds can also behave differently to shares, which also balances equity risk in the portfolio.

Other – 10%

the price of other commodities, cryptocurrencies or any other asset people speculate on.

We allocate 10 per cent to the ‘other’ category. Alternative investments are varied and often volatile, but they can produce periods of strong performance. Furthermore, they often behave differently to ordinary shares and bonds, so help to diversify risk.

Cash – 5%

Uninvested cash in your portfolio should be considered separate to the ‘rainy day’ cash pot everybody should set aside.

For the purpose of this long-term strategic asset allocation, we have got less cash than you might expect in a cautious portfolio. For some of our lifestyle asset allocations that are based on a cautious strategy, we will have a higher allocation to cash, reflecting the fact there are personal situations that mean it isn’t always sensible to be as fully invested as in this strategic asset allocation model.



Find out more about all the assets to add to your portfolio in our comprehensive guide. We have also assessed the outlook for a variety of asset classes in this article.



How risky is the Cautious portfolio?

Unless you need to sell your portfolio right away then realised risk (a fall in its value) doesn’t equate to a realised loss (when you sell at below the value you invested at).

That’s worth keeping in mind because it’s unavoidable that portfolios will see their value fluctuate. Our Cautious portfolio has been designed to try to keep peak-to-trough falls in its value (known as peak-to-trough drawdown) to below 15 per cent, which can happen in a succession of bad months.

Our back-tested asset allocation (to 1976) had a worst peak-to-trough fall of 11.9 per cent, compared with a worst fall of 45 per cent for a mix of UK and world shares.


Next steps

Take your allowances

It’s important to use your allowances. Take maximum advantage of work pension schemes and as much of your annual Isa allowance (£20,000 in the 2020-21 tax year) to grow your investment pot tax-free. People ages 18-40 qualify for the Lifetime Isa scheme whereby the government tops up a portion of your savings per year.

Click here to read our ISA Guide

Click here to read our guide to Sipps


Pick your platform

Whether you want to open an Isa, Sipp or invest in international stocks, your first port of call is an investment platform.

The range of platforms available in the UK today means you should be able to find one which suits your needs. If cost is your priority, our guides show where you can find the cheapest providers; or if service is important, we have ranked the platforms accordingly. We have also answered your key questions on Isas, Sipps and international investing, to help you get going.

Click here to read our ISA platform comparison

Click here to read our Sipp platform comparison

Click here to read our comparison of platforms for international investment