A large part of our objectives at Clark & John is to assist clients to grow their money in risk areas that suit them. This is a brief description of one the powerful tools we use, called Optimised Asset Allocation.
Everyone is aware of the old adage don’t put all your eggs in one basket. Like most old sayings, it’s based on common sense and something we’ve been doing for our clients for years.
The new Platform tool, which we launched in January 2007, is a more comprehensive analysis of clients’ attitude to risk. This then assists us in designing a portfolio that suits you individually. It is based on a concept called Modern Portfolio Theory.
What is Modern Portfolio Theory?
Modern Portfolio Theory (MPT) began as a document by Prof Harry Markowitz in 1952. He demonstrated that for every risk level, it’s possible to construct an investment portfolio that delivers the maximum investment return. A portfolio constructed like this, will place the portfolio on an “efficient frontier” to maximise returns for any given risk rating. Hence, the asset allocation process should first establish the level of risk that clients are prepared for and construct a suitable portfolio to meet those needs most efficiently. That’s what we do with Platform investments.
A fundamental principle of MPT is that one should consider the risk of a portfolio as a whole and not individual assets contained within it. Asset classes that we consider for your portfolios include:
- Cash/Money Market
- UK Fixed Interest
- International Fixed Interest
- UK Shares
- International Shares
This is then monitored each quarter, where we adjust asset classes to ensure it still meets with your individual requirements. We also review the actual selected investment funds, to ensure they still meet with our standards of performance selection.
According to a survey by Brinson, Singer and Beebower, (1991), the principle reason for the variability of returns in portfolios is asset allocation. This accounted for a whopping 91.5%, with stock selection and market timing accounting for only 4.6% and 1.8% respectively.
We have the view that your money is a serious subject and should therefore have serious principles applied to its investment. So whether you invest in an ISA, an Investment Bond or a Pension, you can be sure that it is being regularly reviewed.
To talk to one of the team at Clark and John, simply complete the form below.
Always remember that investments can go down as well as up and past performance is not a guarantee of future returns.
Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower, Determinants of Portfolio Performance II: An Update, The Financial Analysts Journal, 47, 3 (1991).