If your investment portfolio has not been providing you with the returns that you expected recently, it could be time to undertake a review of its overall composition.

Many investors are often overweight in shares and underweight in fixed interest investments, such as government gilts and corporate bonds, as well as property and cash.

The overall performance of an investment portfolio will depend on how your money is spread between these assets.

The process of asset allocation is determined by your personal circumstances and objectives. Your attitude to risk will be one of the prime drivers of the process, as well as your need for income and/or capital growth.

It has been suggested that as a broad rule of thumb, your exposure to fixed interest investments should be in line with your age.

This would suggest that a person of 70 should have 70 per cent of their portfolio in a mix of lower risk corporate bonds and gilts, with the remaining 30 per cent spread between shares and property.

A person of 30, on the other hand, could afford to take a higher risk profile with approximately 70 per cent exposure to the stock market.

Investors often think that they have a spread of investments, as they may have funds in the UK, US, Europe and Far East, but they are generally all stock market-based.

It is important to have exposure to non-correlated investments such that as one goes down, the other tends to go up. What you lose on the roundabouts you gain on the swings. Most parks contain both roundabouts and swings.

The sleep-at-night factor is also vitally important, as each asset class can carry varying degrees of risk.

For instance, corporate bonds can be relatively stable in value and provide a reasonably high level of income. Some bonds will pay an even higher level of income, but this generally means increased risk as it is likely that the fund manager is investing in lower grade bonds to achieve this high yield.

Such bonds will have a higher risk of defaulting due to their poor credit rating, which will result in a capital loss. Fund managers of more equity-based funds may themselves achieve a balance by spreading their risk across 200 shares in their portfolio.

With the introduction of fund supermarkets, where you are simply buying an administrative wrapper to hold all of your investments, it is now easier than ever to construct a well-balanced portfolio across all of the important asset classes.

Furthermore, they offer advisors many useful tools from being able to find the most appropriate and best performing funds in each sector, to even being able to "drill down" into the overall portfolio in order to determine the overall portfolio mix between assets and also geographical exposure, and even identify the top ten shareholdings in throughout the overall portfolio.

An increasing range of software is available to enable advisors to interrogate an investor in order to clearly determine their attitude to risk, rather than the old-fashioned method of being simply a low, medium or higher risk investor.

It often employs a series of psychometric analysis style of questioning.

If you have not undertaken a portfolio review recently, it may be time to contact your advisor in order to re-align your portfolio to meet your expectations, based on your current objectives and attitude to risk, and more importantly, to allow you to sleep at night.

* Nigel Bourke is owner of Stockton-based Nigel Bourke & Co. He can be contacted on (01642) 670307.

Published: 09/09/2003