Your portfolio will be constructed in different ways depending if you choose an individual tailored portfolio or a starter portfolio:
The starter portfolios consist of three basic portfolios with fixed allocations and rebalancing done through contributions:
- The defensive portfolio focus is on minimal risk to the principal amount while still generating an income stream. Only modest long-term growth can be expected, and the time horizon of the investment is short- to mid-range. The target allocation for the defensive portfolio is 80% bonds and 20% equity.
- The balanced portfolio seeks to reduce the potential volatility by including income generating investments such as bonds, accepting that the overall portfolio will be likely to deliver moderate growth of the principal amount, and will exhibit short-term price fluctuations. The time horizon for a balanced investment is mid to long-range and has a target allocation of 50% equity and 50% bonds.
- The aggressive portfolio seeks to maximize the long-term potential for growth of principal. In return the investor is willing to tolerate the risk of large short-term price fluctuations, and that the portfolio is unlikely to generate income in the form of dividends. The time horizon for an aggressive investment is long term and the portfolio has a target allocation of 80% equity and 20% bonds.
- For all target allocations, within the equity component the indices are weighted by market capitalisation, and within the bond component the weightings are 80% on government debt in the local currency, and 20% on international bonds. All targets have been rounded to full percentages.
When creating your individual portfolio we use the questionaries’ answers to estimate the behavioural profile parameters related to each goal. They include time horizon of your goal, and your preferences with regards to capital loss risk (exposure to equity vs bonds), trends (follow-the-market or contrarian) and inertia (how quickly you want to react to movements in the market).
The profile parameters will then guide the associated portfolio optimisation and rebalancing scheme across an actively managed mix of different assets.
We also use these parameters to, on a weekly basis, review what changes (the glide path) should be made to the target mix of assets for each of your goals.
Finally we will consider whether your assets are held in a tax wrapper, such as an ISA or SIPP, to determine the most appropriate way of rebalancing your holdings subject to taxation.
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