Asset Allocation

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We believe that for investors the most important decision concerns the mix of holdings in the portfolio rather than focusing on the individual holdings themselves. To work out what is best for you we consider factors such as your financial needs and objectives, your overall resources, your attitudes to risk and for how long you want to invest.

When constructing investment portfolios we follow the principles of modern portfolio theory (MPT). This was first developed in the 1950s by Harry Markowitz. The aim is to maximise return and minimise risk over the long term by carefully choosing different assets and blending them in a portfolio.

MPT is a mathematical formulation of the concept of diversification in investing; selecting a collection of investment assets that has collectively lower risk than any individual asset. This is possible in theory because different types of assets often change in value in opposite ways. For example, when the prices in the stock market fall, the prices in the fixed income (bond) market often increase, and vice versa. A collection of both types of assets can therefore have lower overall risk than either individually.

N.B In the short term, external events can impact on investor behaviour and market efficiency making them act and react in unpredictable ways. This is why we view investing as being for periods of not less than five years and preferably much longer. We usually advocate high cash holdings outside clients' investment portolios to give liquidity and the capacity to ride our market highs and lows.