Finance, Investing.
Share advice - getting started with shares using a 'model approach' - before starting to invest you will already have considered whether paying - off or reducing debts is a better use of available cash. Then it' s a case of deciding what level of risk you can take, in order to achieve your aims. And you' ll have set aside a suitable' cash reserve' to cover for unexpected expenditure - it' s generally accepted that a minimum of 3 months income is a sensible reserve.
That' s often easier said than done, for it' s rarely black or white, but a question of trade - offs. - you' ll find them on our website and, by identifying which is closest to your own approach, you can get a useful steer on investments that may suit you. To help you, we talk about three' risk' profiles - Cautious, which seek to, Medium and Adventurous describe the approach to risk that investors with each of these investment' personalities' might take. Of course, it' s well accepted that the higher the return you want, the higher the level of risk you' ll have to take: it' s unrealistic to expect your capital to grow by, say, 20% per annum from a low - risk investment. So we' ve focused on three core types of investments - EFTs, Funds and Shares - and developed a way of assessing the part each could play in the overall makeup of your portfolio. Equally though, that doesn' t mean putting all your money into higherrisk investments - it' s more a case of using different types of investments to create the right balance, and achieve the overall level of risk that you are comfortable with. Why these three?
Important as it is, risk isn' t the only issue - though it ought to be your starting point. - each has the benefit of offering a range of risk levels, a variety of different options within that asset type, and the flexibility to be used in different ways by different investors. Which types of investments you use, and in what proportion relative to your overall assets, depends on other factors too. Your knowledge and experience of investing, and the time you have available to manage your investments. Some of the factors you' d want to consider are: how much money you have to invest( either lump sums or as a regular amount) ; what investments you have already. So we' ve taken the profiles approach one step further and grouped these factors( which we' ve termed' inputs' ) together, and drawn three more pen - portraits to describe three levels of' input' .
By determining your own approach based on both risk and' input' you can position yourself within the model and get a useful steer on the mix of investment types that could suit your aims and objectives - as we explain later. - taking risk as the vertical axis and' inputs' as the horizontal axis, we' ve then created an investment model that you can use to guide your asset allocation. Using the asset allocation model. For the more cautious investor with little time, ETFs may play, knowledge or experience a greater role, say, than, for experienced, adventurous investors with time available to keep on top of their holdings. As we said earlier, different types of stock market investments play different roles. Applying this thinking to our model, we can' map' different investment types to varying degrees of risk. For example, a cautious investor who has only a limited amount of time and experience, may look to create a portfolio along the lines of 50 - 60% held in a FTSE100' tracker' ETF, 30% in a UK cautious managed fund, and the remainder in one or two individual FTSE100 shares.
The balance between these various investments will depend upon your individual profile. - as your experience, time and capital, knowledge grows to the extent you can venture further through the model, you can work along the' input' axis, starting with etfs and working up to investment in individual companies. So whatever your existing position on the grid, working through the grid horizontally and then vertically, you can see at a glance where to go next. Equally, if you already invest in primarily FTSE100 shares and now feel you' re ready to take on a higher degree of risk, your next step could be into the All Share ETF, and so on. You can also use the model to look at just one individual asset type. Equally, as many an investor starts off by picking - up on a tip or a' new issue' , or perhaps because you hold other investments through regular saving schemes or in your pension, you might want to use the model to concentrate on just shares. So, for example, if you are an adventurous investor and wanted to have all your money managed for you using Funds, you would form the base of your portfolio with Cautious managed funds, add some extra growth potential through UK or European growth funds and, if your risk appetite stretched that far, top it off with some global funds.
So, you' d look at the FTSE100 companies, move down to those in the FTSE250, and end up with small cap, AIM or overseas companies at the high risk end of the spectrum. - the cut - off point between one square in the grid and the next is not hard and fast. Of course, as we' ve seen, the mix of assets across each investment type will vary according to your circumstances and attitude to risk. Think of it more as a continuum to guide you in where to start looking next.
