Multi-Asset
The First Level of Russell Diversification
Different asset classes have different risk and return characteristics. Your clients' portfolio should combine them in a way that meets their objectives and their need for stability. Finding the combination that is right for your clients' will help you give them the comfort to adopt long-term investment discipline.
What Are Asset Classes?
Some examples of different asset classes include:
- Australian shares
- International shares
- Australian property
- International property
- Australian bonds
- Cash
- Alternative investments
How Does Mixing Asset Classes Work to Reduce Risk?
The most widely accepted way to reduce the risk of investing is diversification — spreading money among a variety of investments as opposed to investing in just one.
Because diversification can lower risk, you can select asset classes (such as Australian shares or international property) that alone could be more volatile but as part of a mix give your clients' a higher potential for returns.
For example, investing solely in international shares can bring strong returns. But it can also mean your clients' may be in for a wild ride in market fluctuations.
To avoid this ride, some investors will put their money in lower-risk investments like bonds and cash, which have historically tended to experience less market fluctuation than shares. But these assets also tend to have lower returns. Taxes and inflation can also eat away much of those returns, making it difficult for your clients to reach their investment goal.
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