When looking into investment strategies for capital growth, the topic of asset allocation may have cropped up.
It is a strategy wherein individuals invest and then divide their investment portfolios between different asset classes to minimise investment risk.
There are generally three broad categories of asset classes. These include equities, fixed-income and cash and equivalents. Some examples of asset classes may include:
- cash (as in money in a bank account with fixed interest)
- bonds or stocks (a riskier approach as they can fluctuate)
- property (a growth asset, investing in property can pay off later on)
- shares (both Australian and international shares are considered growth assets)
There is no hard and fast rule to asset allocation in investment portfolios. Typically, many may see examples of asset allocation in how their super fund investments are structured.
To reduce portfolio assets risks (also known as volatility), financial advisers may recommend diversification of investments into alternative, various asset classes. It mitigates the risks and creates a greater chance of growth in capital overall.
Discuss your investment options with an accountant or financial advisor to capitalise your gains through your investments.