Asset Class Selection

The two broad types of asset classes are:

Defensive: income-producing assets tend to be more appropriate for short-term investors or those who prefer safer, more secure investments with more consistent returns.

Growth: higher risk, higher-return assets tend to be more appropriate for long-term investors who are willing to ride out the peaks and troughs that their investment may experience.

Shares

Shares are easily traded, which makes them a flexible investment. However, with the potential for high returns comes higher risk. The value of shares can fluctuate significantly, so they should be monitored. They generally are suited to longer-term investing.

Property

You can invest in property in two ways.

• Directly – where you buy real estate.
• Indirectly – where you invest in a fund, such as a property trust, which uses pooled investor funds to buy real estate.

Property is typically best suited to investors who plan to keep their investment for more than five years.

Cash

Cash investments range from day-to-day bank accounts to short-term money-market investments. Whilst they offer no scope for capital growth, they contribute to a well-balanced portfolio helping to reduce your overall risk and allow easy access to money.

Fixed interest

Fixed-interest investments mainly consist of tradeable government securities or corporate debt, known as ‘bonds’. Regarded as a relatively low-risk investment, fixed-interest securities historically provide lower returns than shares and property. However, like cash investments, you can sell them quickly if you need money. They help reduce the overall risk of your portfolio and pay a regular interest income, which may be appealing.