Multi Asset
The 1st Level of Russell Diversification
Different asset classes have different risk and return characteristics. Your portfolio should combine them in a way that meets your objectives and your need for stability. Finding the combination that is right for you will help give you 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 you a higher potential for returns.
For example, investing solely in international shares can bring strong returns. But it can also mean you 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 to reach your investment goal.
This chart link to asset class return poster shows you that by combining multiple asset classes, you get a mix that may offer higher returns than bonds and cash, with less risk than shares.
Finding an Appropriate Mix of Asset Classes is Critical
In the same way that Russell consultants work to find the best asset mix for institutional clients, a financial adviser can use sophisticated asset allocation technology to help determine your most appropriate asset mix according to your particular circumstances. Members of Russell SuperSolution can even access Russell LifePoints Target Date Portfolios, which sets and adjusts your asset mix automatically as you get closer to retirement.
After you've determined the right way to allocate your investment among asset classes, Russell further manages risk by helping you diversify within asset classes. For example, if you decide to allocate a portion of your portfolio to Australian shares, you can diversify that portion to include different styles of shares, such as growth, value, market-oriented, or small capitalisation. This way, when one style goes out of favour with the market, the overall effect on your portfolio is reduced.
Learn more about the Multi Style aspect of the MULTI ASSET MULTI STYLE MULTI MANAGER™ investment approach.
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