Beat the Market with Asset Allocation

If your investment goals have changed recently, you may need to reallocate assets in order to realign your investment strategy.

Proper asset allocation is the key to ensuring that your portfolio appropriately balances risks and rewards. This can be achieved by adjusting the percentage of each asset in your portfolio according to your risk appetite and investment goals based on your time horizon.

Asset classes have different levels of risk and return. Consequently, they perform differently over time in different market environments. By creating a well diversified portfolio of different asset classes, you efficiently manage your risk and volatility while maximising your potential gains.

How do large institutional investors accomplish this successfully? One method they use is Core-Satellite Portfolio Management.

What is Core-Satellite Strategy?

Core-Satellite Portfolio Management is an investment strategy that breaks a portfolio into two portions: the "core" and the "satellite".

The core portion is meant to capture the market's returns as efficiently and economically as possible. The satellite portion comprises actively managed securities intended to boost the portfolio's returns and capture market outperformance. This can be accomplished in real estate, commodities, and other alternative investments. These types of investments can be utilized via unit trusts, or directly if the investor qualifies.

The portfolio is designed in this way to reduce risk through diversification, while outperforming a standard benchmark for performance such as the S&P 500 Index.

The core should represent the majority of your portfolio. A good percentage for a moderate portfolio is about 70-80%.

A well-constructed Core and Satellite portfolio is more likely to achieve above-average returns with below-average risk. This strategy is great for those who want to be more involved with their investments without relying entirely on the success of their investment selection.

Build your Core Portfolio with Unit Trusts

A unit trust is a fund that pools investors' money to invest in various assets to meet the unit trust's investment objective. Typically, unit trusts invest in a basket of securities such as stocks, bonds, and/or other instruments. This provides diversification within the unit trust itself.

Benefits of adding Unit Trusts to your portfolio:

  • Provides access to assets or markets which may be difficult for you to invest in directly.
  • You can invest in a diversified portfolio of assets which could normally be too costly to access.
  • You will only need to consider which sectors, regions, and types of investments (equities, fixed income, or multi-asset) you want to explore.

Try out dollarDEX's Fund Finder to help identify unit trusts that matches your investment objectives.

It allows you to select funds from specific geographic regions, industry sectors and asset classes. It can even break down funds by investment managers and whether you can use CPF (Central Provident Fund) or SRS (Supplementary Retirement Scheme) monies to invest in them.

At dollarDEX, we work hard to keep your investment costs as low as possible, so you can focus on maximising your returns. With any investment amount, you can invest at absolutely NO sales charges, NO switching fees and NO platform fees.

Invest with dollarDEX today!

For more information, please contact our hotline at 6220 7890 or email to cs@dollardex.com.

"This article "Beat the Market with Asset Allocation" was first published in Inside INVEST Issue 5 and is reproduced in this website in its entirety. Read Inside INVEST Issue 5 at http://www.insideinvest.com.sg/system/misc/Inside_Invest/jan_2018/index.html."

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