Anyone who has made a lot of money from property would be well advised to cash in some of those profits and deploying them elsewhere, writes Chris Johns.

Anyone trying to convince Irish investors of the benefits of placing a significant proportion of their assets in equities has to confront the uncomfortable fact that most people are quite happy with an asset allocation that directs 90 per cent of money into property.

While this may be an exaggeration (but it may not - unlike institutional money managers, there is precious little data on the investment portfolios of individuals), the point is a good one. Property has been the most successful asset class for much of the past decade and, looking backwards, it is hard to see why anyone would have put their spare cash into anything other than bricks and mortar.

However, anyone who puts the bulk of their savings into property is flying in the face of orthodox financial theory; such people, say the text books, are either woefully ignorant of the risks they are running or, less likely, unusually risk tolerant.

Conventional wisdom has it that we should hold a portfolio of diversified assets; properly designed, a mix of stocks, bonds, property and other investments (such as cash, hedge funds and venture capital) maximises return for a given level of risk. Although it doesn't feel like it now, anyone who stuck all their money into property a decade ago was maximising returns but accepting an enormous level of risk.

That's the trouble with looking at investment through the rear-view mirror. Anyone can see spot the right horse to back once the race has been run. The real question, of course, is what to do now.

Anyone who persists with that 90 per cent allocation to property is making an explicit bet against all that advertising literature that warns about the past not necessarily being a good guide to the future.

The standard advice to any personal investor is essentially the same, although often expressed in different language. First, you have to know what you are saving for and when you are likely to need the money. Next, you have to make some kind of explicit statement about how much risk you are willing to take on.

The first bit of this task is relatively easy. Whether it is a pension or a new car, the ultimate use of the funds determines the probable life-span of the investment and the nature of the liability that saving is supposed to match. The tricky part is the assessment of risk.

Right now, trying to convince many people that property is a massively risky bet is an uphill task.

The simple fact that property - both residential and commercial - has made so much more money than most other major asset classes for so long has convinced many investors that asset allocation is easy. Moreover, the same people also believe that the text books are wrong: putting your eggs into one basket has paid off handsomely.

The trouble with telling someone about the nature of the risks that they are running is that the evidence to back up the argument may take quite some time to arrive.

For example, I might strongly advise that a prudent course of action is to take profits from property investments and use the proceeds to invest in a diversified, international portfolio of equities. (In the interests of full disclosure, giving precisely this kind of advice is my day job). But Irish property could easily rise another 10 per cent or more this year and the global equity market could fall.

My advice, for 2005 at least, would have cost my imaginary investor a lot of money and he is unlikely to trust me ever again. He certainly wouldn't accept that returns obtainable from property came with an unacceptable degree of risk attached.

The nature of investment risk is such that I can make the following statements with confidence. First, there will come a year in which the performance of equities will trounce the returns from property. Second, over the long haul - perhaps a decade or even longer - I can easily make a case that equities will consistently outperform property.

The trouble is, I have no idea when this outperformance will start. It might be this year (although the very early signs are in the opposite direction), but the honest forecaster has to admit the limitations of his art.

It is always very hard to imagine that assets, such as property, that have done well for years will no longer do so in the future. The roller-coaster ride that equities have provided investors with over the past decade - and not least the poor overall returns - have convinced many individual investors that stocks are for the birds. The relative performance of the two asset classes may not change very much for a year or two. But a big change will happen. And history teaches us that such changes creep up on us in unexpected ways.

If you are convinced that the relative return of property versus stocks will yield double-digit percentage gains then stick with real estate. But do recognise that the risks to this bet are almost certainly large and growing.

Anyone who has made a lot of money from property would be well advised to start cashing in some of those profits and deploying them elsewhere. At the very least, an investor that does have that legendary 90 per cent allocation to property would be well advised to reduce it dramatically.

This is not to argue that the allocation should fall to zero (although that time will come); just be aware that diversification, while a touch boring perhaps, is a tried-and-trusted investment maxim.

At the end of the day, it comes down to a simple question: are you an investor or a punter? Anyone who sticks to a 90 per cent weighting in property is, in my view, simply making a large gamble that the property bubble will inflate further. Investors know the difference between a punt and a calculated risk.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.