Asset Allocation
Asset allocation is the process of dividing your investment between different assets, such as cash, bonds, equities (shares in companies) and property. This practice helps to spread risk through diversification – in other words, by not putting all your eggs in one basket.
To benefit from diversification, you need to invest in assets that behave differently from each other. Each asset type has a relationship with others – some have very little or no relation to each other (known as a low correlation), whereas others are inversely connected – meaning that they move in opposite ways to each other (called a negative correlation).
Diversifying your assets helps spread risk because you’re reducing the likely potential for losses. If you had all of your money invested in one asset, sector or region, and it began to drop in value, your investments would suffer.
By investing in assets that aren’t related to each other, while one part of your investment portfolio is falling in value, the others aren’t going the same way. Some assets will actually go up in value when others decrease.
As RM Capital Wealth Ltd is an appointed representative of RM Capital Independent Financial Advisors LLP, we utilise their Centralised Investment Proposition.
RM Capital Asset Allocation Models
RM Capital use asset allocation models which link to your risk score which in turn links to a risk rated portfolio which meets your tolerance and ability to accept risk.
RM Capital’s asset allocation models are driven by Moody’s Analytics capital market assumptions. They are a global leading provider of investment research and analytics for debt capital markets and risk management professionals.
Risk Assessment
Establishing your Risk Tolerance or Profile
We will establish your risk tolerance by considering:
- Your goals and objectives
- Your investment time horizon
- Your investment experience
- Your willingness and ability to accept some risk
- And by completion of a risk analysis questionnaire
The risk score then links to a risk rated portfolio.
Investment Term (Years) |
|||
|---|---|---|---|
| 5 – 10 | 10 – 15 | 15 Plus | For life |
Risk Level |
Navigate Portfolio |
Growth Assets % |
Sensitivity to Volatility % |
ATR Best Fit Range |
| 1 | n/a | 0 | 0 | n/a |
| 2 | Very Cautious | 22 | 0 – 10 | 0 to 38 |
| 3 | Cautious | 30 | 10 – 20 | 39 to 45 |
| 3 | Cautious Balanced | 43 | 10 – 20 | 46 to 52 |
| 4 | Balanced | 55 | 10 – 20 | 53 to 59 |
| 5 | Balanced Growth | 67 | 20 – 33 | 60 to 67 |
| 6 | Growth | 79 | 20 – 33 | 68 to 74 |
| 6 | Adventurous | 87 | 33 – 50 | 75 to 81 |
| 7 | Very Adventurous | 96 | 50+ | 82 to 100 |
Fund Selection
RM Capital’s risk rated portfolios contain either 22 or 23 different investment funds depending on whether an emerging market equity fund is included (only in the aggressive and speculative portfolios).
Further diversification is provided by spread of market capitalisation:
RM Capital minimise stock overlap by avoiding using two funds with similar holdings.
Portfolio Maintenance
The funds are selected by our independent investment committee after completing extensive research using the latest technology and investment management software.
RM Capital’s investment committee has 45 years combined experience in portfolio construction.
The committee meets quarterly to review and assess the last quarters fund performance.
Funds have to meet strict criteria for inclusion in the portfolios which include:
- Short, medium and long term track record
- Volatility and risk adjusted returns
If the strict criteria is not met a fund is replaced with an alternative which meets the fund selection criteria.
Your portfolio will be re-balanced into the latest set of funds at your annual review.
This has the effect of keeping you invested in top performing consistent funds and aligned to your tolerance for risk.