Risk and diversification
The ordinary share capital of a company is, by definition, risk capital, so the risk-averse should generally avoid investing in equities. Different classes of investment have different risk characteristics, and some are much riskier than others. Risk can be reduced significantly by diversification amongst the shares of different companies and industry groupings, but this will not remove the risk of the general market.

Asset allocation
One of the key aspects of this is what is known as the asset allocation. At root, this is the split between the major asset classes: cash, fixed interest securities, ordinary shares (equities) and property. It is important to maintain sufficient cash on deposit for any short-term requirements or emergencies; along with whatever further sums you feel comfortable with. We would not include such amounts in your investment portfolio, although our banking colleagues would be delighted to assist. Most of our clients own their own homes, but we do not advise on property. The long-term investment portfolio we’re discussing here is the part available for investment in fixed interest securities and equities. Once you have established an asset allocation appropriate for you, we would not expect it to change, beyond the occasional adjustment. Indeed, frequent changes tend to be counter-productive as they incur extra costs. Of course, over time, it is likely to be most appropriate to lower your risk level, perhaps as you approach retirement, and require a more certain income.

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