One of the key principles of good investment practice is diversification. In terms of managing your risk and exposure to market volatility, it really does pay to spread your investments.

Most investment experts support the view that diversifying the assets in your portfolio is an important factor in determining the level of return you achieve. However, if you’ve ever tried doing this yourself, it can be very difficult and very time-consuming to decide how best to balance your investments, and when and how you should respond to changes in stock market conditions.

Multi-asset momentum Multi-asset funds that embrace a mix of investment types have increased in popularity over the past decade. The financial crisis led to greater consideration of investment strategies to reduce risk, as investors looked to pursue strategies to navigate inevitable market fluctuations. According to fund flows data from Morningstar, net flows into multi-asset funds reached a two-year high recently.

By distributing investments through several asset classes, multi-asset investments increase the diversification of an overall portfolio, which reduces risk and volatility (the frequency and severity with which the market price of an investment fluctuates), when compared to holding just one asset class for example. At the same time, a multi-asset approach will diversify the potential return, sometimes reducing it. However, what’s important to bear in mind is that multi-asset funds should not be used to maximise returns, but to maximise the opportunities for compelling risk-adjusted returns. So, expect returns aligned to your risk tolerance.The allocation or weighting to each class of asset varies according to the objective of the fund. Increasingly, multi-asset funds are aligned to specific risk profiles, so they can be matched up to each individual investor’s risk tolerance, for example risk averse, conservative, balanced, moderate, dynamic or adventurous.

For the investor, the benefit of multi-asset funds is their simplicity and clearly outlined objectives, making them easy to understand.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and

the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.

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