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Most people are familiar with the saying `don’t put all of your eggs in one basket` and the same applies when looking at investment strategies. Think of the potential risk you are running by investing all of your money in just one fund with one provider - If the fund performs poorly, all of your money performs poorly. Conversely, if the fund performs well, all of your money performs well but with thousands of funds available, how on earth do you decide which fund or funds to invest in? It is generally advisable to spread investments between different asset classes, e.g. shares, property, fixed-interest, etc. Investment can also be diversified over different industrial, commercial and economic sectors as well as internationally. This is known as Asset Allocation, the importance of which was set out in a landmark article, “Determinants of Portfolio Performance,” published in the Financial Analysts Journal in July/August 1986 and updated in May/June 1991 by Gary P Brinson, L Randolph Hood and Gilbert Beebower. This study concluded that 91.5% of a fund’s performance is due to asset allocation. In addition, the Myners Report dated March 2001 highlighted the weight of academic evidence suggesting that allocation decisions can be critical determinants of investment performance. Implementation of these principles requires a sophisticated financial model that attempts to determine an optimal combination of different asset classes to predict the mathematically expected return for your chosen level of risk. At Paramount Group Ltd we understand the importance of asset allocation and work closely with a number of leading companies to ensure all of our clients have access to portfolio’s which offer tactical asset allocation and continual management to reduce risk and maximise returns.
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