Diversification

Each of our Model Portfolios are diversified across four key asset classes:

  • Cash
  • Fixed Interest / Bonds
  • Australian Shares
  • International Shares

Cash is a defensive asset.  We keep cash in our portfolios to provide liquidity to cover any short-term cash needs; and to reduce risk.  Cash is a risk-free asset.  Holding cash reduces the risk of the total portfolio.

Bonds, also known as fixed interest, are a defensive asset and an important part of any portfolio.

Bonds are an agreement to make a set interest payment (e.g. 5%) on a regular basis (e.g. annually) and to repay the initial investment (e.g. $1000) on a set date (e.g. in five years’ time).

Bonds can be contrasted with shares, which pay no set dividend and where there is no agreement to repay your initial investment. ​Bonds are a defensive asset, because they are not as volatile as shares.

Generally, bonds have lower risk, and therefore a lower return, than shares. Including bonds in your portfolio can help reduce volatility and protect your investment during market downturns.

Shares are viewed as growth assets because their purpose is to grow the value of your portfolio over time and ensure that it stays ahead of inflation. In the 20 years to December 2015, shares returned an average 8.7% p.a., well above the 2.5% p.a. inflation rate. 

Due to the expected higher return of shares, they also have higher risk when compared to cash and bonds.

​Domestic shares offer a chance to invest in the Australian economy and access returns in Australian dollars. However, the Australian economy is not very diversified by sector, over 50% of the market is made up of mining, materials and financial stocks.

Balance Impact avoids many of these stocks, and we aim to further increase diversification by adding international shares.

To ensure that we have sector diversification within Balance Impact’s portfolios we include exposure to international shares where there is a larger range of stocks to choose from.  It’s worth noting that the Australian stock market makes up only 2% of the global stock market. 

This larger choice provides more opportunity to find solid investments that are aligned with our responsible investing goals.

I want to make my savings matter.

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Balance Impact 1 Bligh Street Sydney, NSW, 2000 info@balanceimpact.com 02 8226 8596 Balance Impact (ABN 54 608 605 296) is the trading name of Touchstone Capital Pty Ltd, a Corporate Authorised Representative (No.xxxxxx) of SIRA Group Pty Ltd (AFSL: 278423).


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