• Inflation Risk: If the inflation rate exceeds your after tax returns then you are going backwards! You are losing your buying power. This often happens to those who exclusively remain in cash and / or fixed interest.

• Market Risk: An investment will participate in a particular investment sector e.g. Domestic Share Market and often, regardless of the actual holding, will experience the impact of market sentiment, both positive and negative. This can be driven by either economic factors or human behavior and is often a combination of both. Some funds use technical investment tools to manage this.

• Specific Risk: If funds are placed into an asset which is not diversified within itself then the outcome will be dependent on that one placement's performance. Grouped Investment Funds / Mutual Funds seek to mitigate this by diversifying the risk.

• Currency Risk: If investments are held outside of the country in which you live and in which you intend to use these funds then the differential in currencies can have significant impact on the purchasing power of your portfolio. Hedging strategies are a way of managing this.

• Default Risk: This occurs when the issuer of a security is unable to repay a loan. Research Houses / Rating Agencies seek to quantify the probability of this happening.

• Sector Risk: There are times when one sector is depressed while the others are buoyant. Diversification over different asset classes seeks to mitigate this.

• Duration Risk: Locking into a long term investment based on current economic assumptions when these assumptions can change. e.g. locking into a low interest rate Fixed Interest Security for 10 years means the value of the Bond, if tradable, will go down if not held to maturity if interest rates rise. In addition there is the missed opportunity of higher rates in the future. Few can see 10 years ahead! 
  

“Do not put all your eggs into one basket”

Those who diversified over a wide range of finance companies in 2008-10 had a limited view of diversification and were effectively exposed to one market sector. 50+ Finance Companies failed with defaults of $6 Billion!

Diversification over Asset Sectors.

This maxim can be applied to both Asset Allocation  (How much you invest in: Cash, Fixed Interest, Property, Equities and Specialities) the underlying investments used in each of your Asset Sectors.

It is beneficial to spread your investments over a range of assets. In different years often a different asset is the best-performing one. It is difficult to predict which Asset Sector will perform best in any given year.  Trying to pick the best Asset Sector and knowing when to move to another is speculative.

It is prudent to following a consistent plan which weights your exposure to a range of Asset Sectors in line with your Investor Profile. Historical analysis of each Asset Sectors behavior determines how much exposure you should have to each sector.  Your Investor Profile has been aligned with a Strategic Asset Allocation (the long term view) and this can be modified by Tactical adjustments (what's happening now). A mixture of Asset Sectors is more likely to maximise returns and minimise risk providing you with the best opportunity to reach your Goals. The past is not a guarantee of the future but it can be a guide.

Diversification over / within Investments.

Investment diversification within your Asset Sector compliments Asset Allocation. While a portfolio can be diversified over a range of Asset types it can also be diversified over the range of investments types. The intent is to reduce your exposure to the specific risk of one investment.

We will seek to manage your portfolio within the criteria set and will seek to give you exposure to Investments that are performing in the top quartile and to adjust your asset allocation to meet current economic conditions whilst maintaining your Investment Profile. Most investments are medium to long-term.  Fixed Interest  1-3 years; Equities  5-10 years; property 5-7 years. Early redemptions can compromise your strategy.

Returns will always be dependent on current economic conditions and no absolute guarantee is possible.

A well designed portfolio will seek to optimise returns and minimise risk. Where possible Strategic seeks to limit exposure to any one investment to a maximum of 10%