What does a financial adviser do?

The value of advice: Asset allocation

Asset allocation is one of the most important ways your financial adviser can add real value, and it sits at the heart of successful long-term investing. Getting the right balance of investments for you, based on how much risk you can and should take, can make a profound difference to whether you reach your financial goals.

In this video, part of the Value of Advice series, you'll learn why asset allocation matters so much. Investors are rewarded for the amount of risk they take, but because we're all different, each of us has our own attitude to risk. Some people, depending on their age or financial situation, may need to take on more risk to reach their goals; others are less able or less willing to. It's your adviser's job to work out precisely the right amount of risk for you, and then to build a portfolio that strikes the ideal balance between riskier assets such as equities and less risky ones like bonds and cash.

You'll also learn how this work helps you achieve your financial goals. As well as setting the right level of risk, your adviser ensures your portfolio is well diversified, with the aim of delivering the highest possible returns for the level of risk you've chosen to take. This isn't a quick exercise. It takes time and some in-depth conversations with your adviser to get right. But it's hugely important: get your asset allocation right, and you give yourself the very best chance of reaching your financial goals.

The takeaway: asset allocation is far more than dividing money between investments. By understanding your personal attitude to risk and building a balanced, well-diversified portfolio around it, a good adviser aims to give you the best possible returns for the risk you're comfortable taking, and the strongest possible chance of achieving what matters most to you.

Chapters / Key points

• Why asset allocation is central to the value of advice
• Why investors are rewarded for the risk they take
• Why everyone has a different attitude to risk
• How age and circumstances affect how much risk you should take
• How an adviser works out the right level of risk for you
• Balancing riskier assets like equities against bonds and cash
• Why diversification matters
• Why getting your asset allocation right takes time and conversation
• How the right balance gives you the best chance of reaching your goals

Transcript

What does a financial adviser do?

One important way in which a financial adviser adds value is in setting a suitable asset allocation.

Investors are rewarded for the amount of risk they take. But because we're all different, each of us has our own attitude to risk. Also, depending on their age or financial situation, some may need to take more risk than others; similarly, some investors are less able to take risk than others.

It's up to your adviser to work out just the right amount of risk for you, and then to build a portfolio that strikes a perfect balance between riskier assets such as equities and less risky ones, like bonds or cash.

Your adviser will also ensure that your portfolio is well diversified. The aim is to provide you with the highest possible returns for the level of risk you choose to take.

This will take time, and some in-depth conversations with your adviser. But it's very important. Get it right, and you'll give yourself the very best chance of achieving your financial goals.