How does diversified wealth management work?
When the economy is in good shape, stocks are popular with investors. Optimistic about the future, and ambitious to earn the highest possible returns, investors take on more risk. In times of economic slowdown, investors favour bonds. Their investments are less vulnerable to risk in the event of a market downturn – but that does mean returns are lower too.
Commodities don’t follow the business cycle like stocks and bonds. Rather, commodity prices fluctuate with market supply and consumer demand. A commodity like wheat for example, can suffer from adverse weather conditions resulting in limited supply. A drop in the supply raises its price.
Investing intelligently across a range of stocks, bonds, commodities and other investments can reduce the risk of loss and boost returns.
The benefits of diversified wealth management
A diversified investment portfolio means that there is no overexposure to one asset which could leave the investor vulnerable to a sudden change in fortune. Investing in a range of assets spreads the risk across sectors, companies and geographies, protecting the investor from negative trends and enabling them to benefit from positive ones.
The age of the investor plays an important part in deciding how to allocate assets. A standard rule of thumb used to determine how much you invest is ‘100 minus your age’. So, younger investors between 25 and 35 years old should look at equity allocation of 75% and 65%. The older you get, the lower your equity allocation. This is, of course, dependent on personal circumstances.
Investors need to carefully consider how much risk they want to - and are able to - take. This willingness to take risk is called a ‘risk appetite’. You should also consider the investment time period before making an investment. Some assets, like stocks, are often suited to a longer term investment plan.
Greenfinch and portfolio diversification
At Greenfinch, we believe that good asset allocation involves blending a combination of investments that don’t all act in the same way at the same time. This means that during periods of market instability, your investment is protected from severe losses and exposed to some potential gains.
Your Greenfinch diversified investment portfolio is managed by a team of award-winning experts. In the lead-up to the 2008 crisis, for example, the team reduced its investments in equities, which helped protect clients from the subsequent global market crash.
Clients’ portfolios are regularly monitored and adjusted in line with actual and forecasted economic shifts.
Your Greenfinch account options
If you are interested in diversified portfolio management, Greenfinch offers a range of ways that you can invest. With as little as £1,000, you can open a General Investment Account (GIA) or an Individual Savings Account (ISA).
If you’d like to know more about our account options or how we invest in diversified investment portfolios, please contact the team today.