Asset classes and investment options
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Asset classes and investment options

Undoubtedly, a successful investment strategy is a result of hard-thought process which every individual investor plans out. Investing without any form of plan, targets, goals or policies could mark the recipe for disaster. Planning is key, investor discipline too, and aligning an investment portfolio in line with an investor’s need might, at face value, seem like a daunting task, but with the right expertise and with the right advice, in the medium to longer term, this is more than achievable.

There are a number of investment options for both the inexperienced and the seasoned investor to analyse what assets are available for generating future wealth and income.

Along the years, and given the returns generated, investing in capital market (such as in equity and bonds, directly and/or indirectly) has become a popular alternative to the traditional fixed term deposits over the years, even more so now that interest rates continue to remain at quite low levels (although we have seen them creep upwards over the past 6-9 months or so).

There exist a number of options that are available to individuals of all ages, and properly understanding where one stands on the spectrum and grasping the intricate concept of each asset class is pivotal to making the right investment decision.

Equities are considered to be one of the most volatile asset classes, rightly so. They have the potential to generate substantial returns over the long term, supported by the fact that bull markets have almost always outlasted bear markets in previous economic cycles, according to research carried out by Morningstar analysts. Whilst we know very well that the past is no guarantee of future performance, patterns and economic cycles do tend to repeat themselves, albeit in sporadic bouts.

Young investors may benefit by keeping larger exposures to equity investments, assuming they have the potential for a longer investment horizon and no major imminent financing requirements.

The risk-reward trade-off of investing in equities from young is advisable, especially when the concept of cost-averaging is introduced into a portfolio, assuming a full suitability profile is conducted by one’s investment advisor, where the ability and willingness to take on risk according to one’s financial situation are assessed and reviewed in an on-going manner.

It is not recommended for investors finding themselves close to or past the pension age to be highly exposed to risk and they should be aware that they have limited tolerance (and scope for that matter) for taking on risk, especially if periodical income is critical for them.

Fixed income securities and/or diversified fixed income portfolios with minimal to no equity exposure are usually the optimal options for investors within this age category, but also come with their fair share of risk, especially given the current interest rate cycle.

It comes to no surprise that in Malta, government bonds and local fixed income securities remain very popular amongst the middle-aged to pension aged investors whilst the younger generation has become accustomed to taking on more risk and higher risk allocations in the form of high yielding funds, high yielding debt as well as equities.

At the end of the day, investors have the choice where to invest, given their preferences and suitability. Performance depends on what underlying assets have been included in a diversified portfolio, and notwithstanding the degree of risk of an asset class, one must stress the importance that an element of market outlook is paramount when constructing investment portfolio and recommended asset allocations.

This article was issued by Mark Vella, investment manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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