Balancing Your Portfolio – What It All Means

Image representing Balancing Your Portfolio – What It All Means

As part of a series examining the concept of balancing your portfolio, Richard T Lishman takes a look at the basics of investment.

If you are looking to make long-term investments, it’s important to recognise what combination of different investments are best suited to your current and anticipated financial circumstances, needs and temperament. Indeed, in the same way that there isn’t a diet that suits all, there isn’t a formula that would produce the best possible portfolio balance.

Asset Allocation

How you choose to allocate your assets – which is when you determine what percentage should be where – will depend on your individual needs, investment time frame, the current market and your risk tolerance. Potential factors that could influence the amount of risk that you take on in your portfolio include age, family and home life, employment status, income and financial/career goals and aspirations.


It’s important to keep in mind the benefits that spreading your investments among different classes of assets can afford to the balance of your portfolio. Because each category is often affected by economic events and the state of the market, diversification helps ensure that your portfolio is more protected should one asset suddenly start to underperform. If it suits you, you could even choose to diversify within categories. That way, if one begins to fail, but another flourish, you can rest assured that the two will cancel the loss out.

Types of Assets

There are four main types of asset classes:

Cash – This involves putting your money in a savings account or building society to accumulate money from the interest rate.

Bonds – A bond is a debt investment in which an investor loans money to a corporate or to the government for a fixed period of time at either a variable or fixed rate.

Shares – Depending on how many shares you hold, you may get a proportion of any profit the company makes.

Equity Funds –A fund that invests in stocks or ‘equity securities’.

Property – Investment property is when property, land or a building provides rental income and/or capital appreciation.


Bearing all these elements in mind, it is important to consider the effect that changes to personal circumstances and fluctuations in the market could have on your portfolio. Imagine Dr A is a dentist with investment experience, who has investments in each asset class. Despite the diversification, he must take into account the recent 0.5 per cent fall in overall house prices in England and Wales that took place in March of this year, as well as the continuing fluctuation and volatile conditions of both international and British equity markets. Because of these changes, Dr A’s portfolio may no longer be balanced. It may also no longer reflect his attitude towards risk as it once did. At this point, Dr A would consider rebalancing his portfolio – that way he can maximise his return while minimising the risk.

To find out more on creating a risk profile and how to calculate risk versus reward, watch this space for the next blog in the series.

For more information please call 0845 345 5060, 0754 DENTIST, email [email protected] or visit www.money4dentists.com

Posted by Gemma

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