Asset Classes
The degree of risk that an investment product carries will depend on the underlying assets within it. However, unless you have a substantial amount to invest and the expertise to do so, your ability to spread your investments across the whole range of assets may be limited. SFS has always promoted the benefits of products and funds that enable clients to access a full range of assets in a cost effective and efficient way.
Investing in this way allows you to leave the management of your investments to the experts, who will make the day-to-day decisions on investment strategy, so you don’t have to worry about them.
By investing in products that contain a range of asset classes you can reduce the overall risk to which your capital is exposed, as when one area is performing less well, another area may produce higher returns, which will still enable you to achieve your objective.
There are four main types of investment categories that the term ‘Asset classes’ normally refers to - cash, bonds, equities and commercial property. Each has its own strengths and benefits, as well as their own drawbacks - in other words there are risks and rewards associated to each.
The graph below compares the return on a £10,000 investment in the four main asset classes:
All of these assets can be held either directly, for example buying a share in a company or a share of a property, or can be held as part of an investment product/fund, such as a collective investment. This is where an investor pools their capital together with other like-minded investors to buy units in a fund which then invests in a particular asset class or classes. These pooled investments can themselves be held within various tax-efficient wrappers, such as ISAs, pensions and bonds, which can be used to assist investors with estate planning or retirement planning, for example.
Please note, all data referred to in this Guide has been provided by Lipper Hindsight. All returns indicated were achieved during economic conditions which may not be repeated in future. Therefore, past performance is not necessarily a guide to future returns.
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