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Asset Allocation
Diversification to Reduce Investment Risk
Asset Classes Lyfords Uses
The asset classes are cash, fixed interest, property, equities and futures/hedge funds. There are also sub-classes related to industry sectors and regions and whether your money is invested within New Zealand, or offshore.
We use historical data as a basis when developing portfolios. Over the longer term (15 years plus) each of the major investment sectors will tend to conform to their historic earnings patterns. This pattern has proved remarkably stable across different economies and time periods.
Investment | Historical Average | Volatility |
Cash | 0.0%-1.0% | 4.4% |
Fixed Interest | 1.0%-1.5% | 7.1% |
Property | 2.0%-3.0% | 3.8% |
Equities | 5.0%-6.0% | 21.2% |
Small Companies shares | 8.0%-9.0% | 35.2% |
Managed Futures | 8.0%-10.0% | 20.0% |
* Real Rates of return is the actual return less the effect of inflation.
The volatility figure represents the amount that returns may be expected to differ from the average in any one year. For example, property returns can be expected to be between €œ(1.8%) and 6.8% the majority of the time.
The 'real rates of return ' (net of inflation, management fees and taxes) you could expect, based on historical trends over 15 or more years in the New Zealand and off-shore markets, depends on the investment risk return profile chosen. We believe realistic 'real rates' of return are:
| Portfolio Risk/return Profile | Realistic Real Rate of Return |
| Defensive | 0.5-1.0% |
| Conservative | 1.0-2.0% |
| Balanced | 2.0-3.5% |
| Growth (moderately aggressive) | 3.5-6.0% |
| Aggressive | 6.0-8.0% |
| Highly Aggressive | 8.0-10.0% |