- Retired hobby investors who don’t depend on the portfolio for income
- Wealthy people who won’t need to crystallise losses after a bad period on the markets
- Few liabilities and stable income
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 and High risk.
Some investors are in the fortunate position that they have plenty of money to invest as a hobby. If you have paid off your mortgage; have seen your children through university and maybe helped them on the property ladder; have a secure source of income, perhaps from a defined-benefit pension scheme; and you have plenty set aside for a rainy day and end-of-life care; then all the sensible boxes are ticked.
If, on top of that you have the appetite to take risk and don’t mind periods when equity markets fall savagely, then perhaps you’re happy to live by that sword. If that’s you, then a high-risk asset allocation is fine, and you can mainly invest in shares. This probably applies to a hardcore of long-term Investors' Chronicle subscribers who like the intellectual stimulation of keeping up with the world of commerce and finance and the thrill of trying to beat the market.
It still helps to maintain a bit of a framework, however, and there are times when other assets, such as corporate credit, real estate, gold or other commodities, will outperform, so this simple High-Risk asset allocation has been provided to give high-octane investors food for thought.
What’s in it?
Equities – 80%
Investing in stocks and shares is a fantastic hobby and a perfect way to keep up with the world after you retire. Within this fascinating asset class there are large UK companies, US-listed mega corporations, fast-growing opportunities in China and emerging markets, plus other developed overseas markets such as Europe and Japan.
There is also the intellectual challenge of trying to beat the market with high-growth small-cap stocks in up-and-coming businesses and industries; or finding value opportunities the market has overlooked.
Fixed income – 10%
Mostly referring to sovereign bonds (money borrowed by countries) and corporate bonds (money borrowed by companies), fixed income is so-called because the borrowing institution is required to make regular coupon payments to bondholders.
The coupon doesn’t change over the life of the bond and when it matures, the bondholder also receives the principle amount lent to the issuer. Bonds are traded between investors after they’ve been issued, so part of the returns bond funds make is down to fluctuations in bond prices on the secondary market.
Other – 10%
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.
If you’re a high-risk investor, the Investors' Chronicle is the place for you. Every week, we provide two stock ideas and one fund idea for you to consider for your portfolio. Sign up to our weekly newsletter to get our ideas delivered directly to your inbox.