Asset allocations (and market assumptions behind them) are one of two options in the software for calculating the capital growth on investments. The other is using a simple fixed growth rate.
An asset allocation refers to how an investment is split by underlying asset classes. For example, we could define an investment as being made up of 70% UK Equity and 30% Fixed Interest. Unlike a fixed growth rate, asset allocations derive an average 50th percentile return, which the software uses as the investment's assumed rate of return, as well as an upside and downside range or return, each being two standard deviations from the 50th percentile. This range of return can also be equated to a level of risk.
Because of the range of return an asset allocation provides that a fixed growth rate cannot, there are some features in the software require at least some investments to be grown using asset allocations if they are to be used. These features include the Asset Allocation Overview as well as the Monte Carlo and Historic simulations.
A single fixed growth rate or asset allocation can be set to grow all investments and retirement accounts during the selected stage or growth can be set to be calculated during the stage differently, based on account type (taxable, tax free, tax deferred).
To set a single fixed growth rate or asset allocation for the stage, select the first link, "Asset Allocation".
The Asset Allocation panel also provides the option to enter a fixed growth rate for the stage.
If instead you want to set growth using an asset allocation, click Edit or double-click the pie chart.
Among the asset classes provided, enter an asset allocation that amounts to a 100% allocated portfolio. Click OK when finished.
If you save and reuse model portfolios, click Edit and then click Load to use an asset allocation for your library of model portfolios.
Another option is to click Optimise and select a portfolio based on risk.
Taxable – Current accounts, savings, offshore taxable investments.
Tax deferred – Money purchases and drawdown pensions, onshore and offshore life funds (bonds), discounted gift trusts, other trusts (a general category asset for trust modelling)
Tax free – ISAs, venture capital trusts (VCT), enterprise investment schemes (EIS), charitable trusts, national savings certificates, child trust funds, other trusts, loan trusts, spousal bypass trusts
Plan Preferences vs. System Preferences
Changes to this setting on the mirror Default Inflation / Growth Rates panel in System Preferences, on the left side of the screen, will be used only going forward, as you create new client cases. System Preferences are used as a template only for new client cases. Changes to System Preferences will not retroactively affect your existing client cases.
If you want to change this preference in any existing client cases, you will need to open and edit them individually, in each case's Plan Preferences.