News: Investors fail to allocate portfolios wisely

Almost half of investors do not know the exact split of their portfolio between equities, bonds, cash and property, according to a mutual fund manager’s new survey.

This is despite nearly one in five having over £50,000 of their savings in investment funds and share-based accounts.

Almost half of investors surveyed in Fidelity International’s study admitted that they did not know exactly how their savings were divided between equities, bonds, cash and property. Of these, nearly one in ten had no idea at all about the asset allocation of their portfolio.

Over a third of all investors surveyed (35%) were also unsure of what proportion they should ideally have invested in each asset class. When asked to hazard a guess however, investors estimated that a model investment portfolio should be made up of 29% property, 27% cash, with 19% and 16% invested in equities and bonds respectively, and a further 13% in alternative investments.

The research also revealed that investors aged between 18 and 29 are the most likely to lean towards cash as the core holding in their overall investment portfolio, estimating that 32% should be held in this asset class, compared to those aged between 30 and 50, who would hold 26% of their portfolio in cash.

Doug Naismith, managing director of European personal investments at Fidelity International, commented: "Our research clearly shows that while some people have got the balance broadly right, for many investors it is a case of guesswork when it comes to constructing a diversified portfolio."

"Younger investors seem to believe a large amount of their savings should be in cash, when in fact your twenties should be the time to concentrate on investing for growth while you still have plenty of time, and your overall investment goals are likely to be longer term."

"We believe that continually reviewing your asset allocation throughout the lifetime of your investments is hugely important. Closely monitoring investments or seeking regular financial advice are the key ways to making sure your portfolio is on track and that should your goals change, your investments can too."

"However, we realise that for some investors keeping on top of asset allocation and getting the ‘balance’ right, is difficult."

Investors who are happy to delegate asset allocation decisions to an expert have a solution to the issue. The expert will structure and balance their portfolio for them as they approach their ‘target’ maturity date.

Fidelity currently offers three WealthBuilder Target Funds in the UK, with target dates of 2010, 2015 and 2020, which investors can select depending on their individual goals, for example retirement planning or funding a child’s education costs.

Run by Fidelity’s multi-manager team, led by Richard Skelt, the Target Funds’ change their asset allocation over a set period of time, with the focus on delivering capital growth in the early years, and shifting to preserving capital, and therefore reducing risk, as the fund nears its target.

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