What does your financial adviser mean when they are talking about asset allocation?

When a financial adviser talks about asset allocation, they are referring to the process of dividing an investment or pension portfolio among different asset categories, such as stocks, bonds, and cash. The goal of asset allocation is to help investors achieve their financial goals and manage risk by diversifying their portfolio across a range of different asset classes.

Asset allocation strategies vary depending on an individual's financial goals, risk tolerance, and investment horizon. For example, an investor who is saving for retirement and has a long-term investment horizon may have a higher allocation to stocks, which have the potential to provide higher returns over the long term but also come with higher volatility. On the other hand, an investor who is closer to retirement and has a lower risk tolerance may have a higher allocation to bonds and cash, which tend to be less volatile but also offer lower potential returns.

A financial adviser may recommend an asset allocation strategy based on an individual's specific financial situation and goals.

Below in an brief description of the common asset classes a summary of good bits and bad bits of each one.

It is important to note that these are generalisations and the actual pros and cons of an asset class may vary depending on specific market conditions and other factors. It is important for investors to carefully consider their financial goals, risk tolerance, and investment horizon when deciding which asset classes to include in their portfolio

Remember - if in doubt, seek advice from a qualified independent financial adviser.