Blog – Week Five – Holiday and back to work

Nice to speak with you all again, you can’t notice through your computer screen but I am a little bit more tanned than usual this week. Key words there being ‘little bit’. I didn’t quite reach the golden brown colour I was hoping for after my recent holiday to sunny Cyprus although it was nice to catch some rays and have a dip in the pool. Fair to say I managed to sneak a few Brandy Sours in also, be rude not to when your all-inclusive. But don’t worry guys that’s all behind me now as I am back into work mode. Although I would be lying if I said that I hadn’t had the odd daydream here and there about being back on the beach in Cyprus, the only beach I get to look at now is the home screen on my laptop…shame.

What have I learned? – Asset Allocation

Apart from learning that holidays don’t pay for themselves, I have been looking into Asset Allocations recently and left an example of what that actually is below.

Potential Asset Allocation Matrix

So as you can see from this diagram there is a lot of different ways that you can allocate your assets. Each different way of doing so comes with its own level of risk. As a general rule of thumb, the more diversified a portfolio, the less risk you are taking.

This is unless you have your assets solely in cash of course. Although this is good for liquidity it is not a good way to try and make a return from your disposable cash, since not investing your cash not only means that you miss out on potential investment returns. You also need to bear in mind that your cash is also probably going to be outdone by inflation rates, meaning you are effectively losing money by having it as money, crazy when you think about it.

Whilst looking at asset allocation it is also important to notice how it links to risk and the length of time the asset should be left alone for. You need to acknowledge that people are at different stages of their lives and some might want to spend their investments soon, while others don’t plan to use it for ages. The more risk you can tolerate the better chance you are likely to have for a long term payoff, but you need to note that if the markets were to crash it can take a long time to get back to where you started. It just depends if you can handle that.

If you are talking about the assets in your pension pot you’ll most likely find that the younger workers who can’t get his hands on his pension for 20 or 30 years won’t care much about what its worth on day to day basis over the coming few years- they probably won’t even get round to looking. But this isn’t always a major problem, since they can afford to take more risks since they have plenty of time for their pension to come good again.

Someone nearing retirement would most likely be better off taking a cautious approach with their investments in order to be confident with their financial situation, as if they do come up short you will be facing a difficult situation resulting in a change to their desired spending. For a starter they would not be able to have that holiday in Cyprus they’d hoped for…let alone the brandy sour.

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