NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.
Advertiser Disclosure

What is the traditional investment portfolio allocation?

What is the traditional investment portfolio allocation?
Image source: Getty Images


There’s always ongoing debate around what the best investment portfolio allocation is.

Should you stick with a more traditional approach? Or have times changed and a fresh attitude is needed? Let’s take a look.

Compare stocks and shares ISAs

If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of some of the top stocks and shares ISAs.

What are investment allocations?

This just means how much of your portfolio is put into different assets. A good portfolio should contain a healthy mix of investments so that you’re not overly reliant on just one thing.

Doing this can help minimise your risk. It can also make sure you’re exposed to lots of different markets. This way, your portfolio has a good chance of performing no matter what is going on in the world.

Diversification of your investments doesn’t guarantee you’ll make money and it’s still possible to make bad investing choices. But a diversified portfolio can be a step in the right direction.

What is a traditional investment portfolio allocation?

For a long time, data seemed to suggest that the best performing portfolios were those with a 60/40 split between equities and bonds. So a traditional portfolio would look like this:

  • 60% stocks and shares
  • 40% bonds from governments, banks or companies

Rupert Thompson, Chief Investment Officer at Kingswood explains: “There has been much debate around whether there is still a place for traditional portfolios made up of 60% equities and 40% bonds.

“We believe that asset allocators have in recent years moved considerably away from the traditional 60/40 portfolio and this trend looks set to continue. The ideal investment allocation to bonds will continue to depend very much on the risk profile/time horizon of the portfolio.

“The outlook for inflation is also crucial in determining the optimal allocation going forward. This should be rather clearer in a few years’ time when it should be much more apparent whether we have moved into a new inflationary era or are back to the disinflation of the last decade.

“What is clear, however, is that the ideal bond allocation for any portfolio is significantly lower than in the past.”

Are you making these 3 common investing mistakes?

These all-too-common investing errors can cause you to miss out on the long-term wealth-building power that shares can hold….

To help you side-step these pitfalls, and move forward on your path to wealth-building, we’ve created a free report, “The 3 Worst Mistakes New Investors Make”.

Just enter you best email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

How should I allocate my investments?

This will really depend on quite a number of personal factors. Asking yourself the following questions will help you to decide the right path:

  • How long are you planning to invest?
  • Are you risk-averse or do you have an appetite for volatile and risky investments?
  • Is your investing goal to build wealth or preserve it?
  • Which assets and markets do you best understand?

If all of this sounds like too much work, you can always use an investing solutions provider that will build and manage a portfolio for you.

What is a good investment portfolio allocation?

If the 60/40 portfolio is no longer a favourable option, what other alternatives are there?

Thompson does suggest that if you want to stick with bonds, there are still some attractive choices out there. You just have to do a bit more digging to find them. Emerging market bonds is one area he believes still offers a decent risk/reward profile for investors.

Moving away from bonds entirely, there are other assets that may act as a good balance against equities and protect against inflation. These could include things like:

  • Precious metals (gold and silver)
  • Commodities
  • Property

Cryptocurrency is another asset Thompson believes might play a bigger role in future portfolios. But for now, the wild swings in price mean that cryptocurrency doesn’t fulfil the key role of bonds, which is to reduce portfolio risk.

Takeaway

There is no magic formula for the perfect investment portfolio allocation.

Sometimes it can be a good idea to let professionals help manage your portfolio. This can be done fairly cheap these days.

If you do want to design your own perfect portfolio, make sure you’re using a share dealing account that gives you access to a wide range of assets. This way you can build an investment portfolio to stand the test of time and perform well under different conditions.

Was this article helpful?
YesNo

Reviewed and rated 4 stars out of 5 by MyWalletHero

Need investment advice? Get a free initial review lasting up to 1 hour, plus £50 off any follow-up advice.

MyWalletHero has sourced you a £50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through Unbiased.co.uk*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free – use the Unbiased matching tool.

*This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here.


Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.