Volatility is a term that refers to the unpredictable upward and downward shifts of investment values over a period of time. The greater the volatility the more frequent the shifts. In the long term, the greater the volatility the higher the likely returns.
In deciding the constituents of your portfolio you need to consider if a spread of assets would best suit your needs. This approach will provide you with the best long-term returns for the level of short-term volatility that you are prepared to accept.
Diversification Over Investment Market Sectors
Depending on the circumstances, in preparing this plan, we normally select a combination of investments designed to best suit your requirements. Investment sectors move in different cycles. In order to minimise the volatility and risk in a portfolio, it is necessary to diversify across the various asset classes, with the weighting of each asset class reflecting economic conditions and investment prospects.
In some circumstances, it is also important to achieve a balance between income and growth. This allows income requirements to be met, while minimising taxation liability. It is also important to protect the value of capital against the effects of inflation. Many investors however will prefer capital growth instead of income over the longer term.
What investment options are available?
An annuity, an allocated pension, managed funds, Australian cash, global cash, Australian fixed interest, International fixed interest, Australian equities (shares), global equities, hedge funds, hybrid/alternative income, Australian bonds, global bonds, Australian listed property, Global listed property, unlisted property, direct property, infrastructure, agri-business, private equity via managed funds, listed managed funds and risk insurance products.
Risk / Reward Trade Off
Generally, the higher the desired return the higher the risk that will need to be taken.