6 Asset Allocation Tips, June 2025
In this short article, we have outlined 6 clear and distinct Asset Allocation tips for Investment & Pension Portfolios. We believe that these are fundamental to the sound oversight and management of Portfolios.
The 6 headings are:
Diversify Diversify Diversify
Spreading your investment allocation into different asset classes, geographies, and sectors will help to reduce your risk and volatility, protecting your portfolio in falling markets.
Well-diversified portfolios include a healthy mix of Fund Managers and Security types, focusing on various fund management styles, such as active and passive.
In the current environment of market volatility, the case for diversification is more important than ever to minimize risk.
Collating and consolidating all of your investment & pension portfolios into one overall asset allocation enables you to analyse and review your level of diversification (or lack thereof).
Ensure your Risk Level is appropriate to you
You need to decide on your own appetite to risk by asking yourself difficult questions like your ability to sustain losses and your appetite to volatility.
Analyse the Asset Allocation of your existing Investment & Pension Portfolios to understand the level of risk within it. If there is a gap between your desired level of risk and the actual level of risk, then this gap needs to be remedied.
Avoid taking unnecessary and inappropriate risk. Buying individual shares in the stock-market can be extremely risky. To reduce this risk, investors can buy passive ETFs and Funds that benefit from internal diversification.
Watch your currency exposure. A low risk investment listed in a non-Euro currency becomes significantly higher risk as now there is foreign exchange risk. Consider Euro-hedged shares classes if available.
The more you understand your own appetite to risk and your investment objectives, the more your portfolio will be aligned to these metrics.
3. Choose the right Providers and Advisor
Your financial advisor and investment manager needs to have as few conflicts of interest as possible in providing advice to you and recommending portfolio changes.
Choosing fund managers with a strong track record of consistent returns & outperformance is very important.
For Pensions, ensuring that the Insurance Company, Pensioneer Trustees or Qualified Fund Managers are reputable and have a strong service offering is of paramount importance.
Getting access to the top global fund managers and portfolio strategies at the institutional level is possible and should be sought after.
4. Understand the tax implications of your Investment Portfolio
CGT v Exit Tax: Gains in certain investment instruments are liable to Capital Gains Tax (CGT) while others are liable to 41% Exit Tax.
Tax Compliance Cost: Running complex investment portfolios with changes on an ongoing basis means that your accountant might send you a bigger bill for completing your tax returns. You might also find that a Revenue enquiries down the line could catch you out for not disclosing certain acquisitions in offshore funds correctly or not returning gains/incomes correctly.
Use your Pension: In as much as possible, more active investment strategies should take place in your Pension to benefit from the tax-fee nature of these retirement vehicle.
Ensure that your financial advisor knows your specific tax situation and structures your portfolio accordingly.
5. Stay Liquid
Keep over 75% of your Investment Portfolio in listed assets that are either traded on a recognised stock exchange or are daily traded funds.
This liquidity will enable you and /or your financial advisor to react quickly to changes in either market conditions or your own risk preferences.
Listed securities also provide you with a more accurate up-to-date asset allocation and valuation to assist you in your strategic & tactical decision making.
Traditionally illiquid asset classes such as Property can now be bought efficiently on the stock market through listed vehicles. It now begs the questions of having any more than 25% of your pension or investment portfolio in illiquid assets.
6. Be careful with Fees & Charges
Getting clarity as to the overall fee structure in your Portfolio is essentially. The ongoing fees include the Portfolio Management fees and the Total Expense Ratio (TER) of the constituent holdings.
Stockbroking commissions and third-party costs on buying and selling needs to be watched also. These fees are often a higher percentage for smaller transactions.
VAT of 23% may be levied on stockbroking annual management fees which is irrecoverable for individual, non-business investors. This is not the case for investing via Life Companies.
In terms of the instruments that comprise a portfolio, Passive investments are a lot cheaper than Active Funds due to the fact that they are not actively managed.
Keeping control of costs by reducing management fees, commissions and TERs is important. However, too much of a squeeze on costs can result in below-par advice and poor service.
Disclaimer:
The above points are the Jonathan Sheahan’s understanding and opinions on Investment Strategy and Asset Allocation. No information above should be relied on as formal advice on your Pension or Investment policy. The value of your investments may fall as well as rise.
To receive formal advice, you need to 1) Agree to Compass Private Wealth Terms of Business, 2) Complete a Factfind exercise and 3) Be issued with a Statement of Suitability from Compass Private Wealth.