How to spread your savings for maximum return - Personal Finance ...

Spreading your investments sounds like a good thing to do ? but what does it actually mean in practice, and why should you do it?

It may be surprising to know that nearly 40% of private investors have little idea about asset allocation, so don?t worry if you don?t! Spreading your savings means spreading it between the major types of assets: cash, property, fixed interest and equities.

Finding the right balance between these is vital, not only to get the best returns but also to ensure that if there are any falls in a certain area you can be sure to limit your losses.

Objectives

Getting the right balance is different for everybody, and is mainly dependent on the risks you can take ? both financially and for your own sanity!

You have to think about the length of time that you will leave your money for. Those who are younger can afford to go for the higher risk stocks and shares, as they will not need access to the money for a number of years and will be able to recoup some if it is lost.

On the other hand, those nearer retirement age will want to opt for a more cash-based portfolio as they don?t want the risk of losing any, don?t need the high returns and will need to access it to use during retirement.

You need to think about what you want your money to achieve before committing.

Reduce risk

With the onset of the recession those whose investments were heavily exposed to equities suffered large losses as share prices dropped dramatically.

Those with more balanced portfolios, including fixed-interest investments like corporate bonds, cash and property were able to reduce the impact as these asset types produced positive returns as prices fell.

It is also worth spreading your investments geographically. European countries have been hit particularly hard by the recession, whereas many in Asia have been relatively unaffected. Avoid having all of your money in one place and if a crisis hits you will only lose some, and not all, of your money.

Maximise returns

Whilst you want to ensure that you lose as little money as possible in a crisis you also want to ensure that your money reaches its potential.

Fixed interest options, such as savings accounts, will be safer but if the interest rates stay as low as they are now then you won?t earn very much either.

To get maximum returns you will need to use at least some of your money to open a share dealings account.

It is advisable to have a solid cash foundation to fall back on, but the stock market will almost always beat savings in the long term. If you ensure that you invest wisely then you can make your money work for you.

Source: http://www.personalfinance4all.com/how-to-spread-your-savings-for-maximum-return/

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