While diversification is important, establishing an optimal investment portfolio requires more than simply acquiring a wide spread of different assets. To be truly effective, the selection of investments in your portfolio also needs to be tailored to take into account your specific risk profile, financial objectives and investment horizon. It takes a thoughtful approach to asset allocation.
Different asset classes have different risk/return profiles. Shares tend to outperform other asset classes over the long run, but their performance can be more volatile. Conversely, bonds generally provide more steady expected returns but more limited capital growth over the long term. From a global perspective, the fast-growing dynamics of emerging markets (such as Brazil and India) can offer opportunities for strong expected returns but with more variability than the lower risk, steadier growth opportunities in more developed but stable economies (such as Australia).