Asset allocation
At retirement a number of factors will help to guide your investment choices, such as:
- What will your regular income be?
- How safe will your capital be?
- Are you able to keep growing your capital?
The answers to these questions will influence your 'asset allocation'. Asset allocation is the proportion of money allocated to certain asset classes such as shares, property, fixed interest and cash in your portfolio.
The proportion of investment in growth assets tends to decline over an investor's lifetime. Accumulators, that is people in the working phase of their life, can often invest more heavily in shares and property, often over 70% of their portfolio depending on their objectives, financial situation, age and risk tolerance. Retirees, on the other hand, may have a higher proportion of income assets and perhaps only 30% of their portfolio in growth assets.
Whilst traditional asset allocation is often used to construct a portfolio that is tailored to an investor's needs and risk tolerance, many investors also overlay an allocation to a guaranteed income stream such as an annuity. This may form part of the income assets and so enables the investor to allocate to other asset classes whilst knowing their basic income needs have been met.
Your financial adviser can help you determine the appropriate asset allocation for your circumstances.