Aiming for an early 60s retirement

"I place relative importance on short-term capital preservation," he says. "But my attitude to risk is medium to high, as I believe this needs to be the case if I am to achieve better than average returns. This is demonstrated by my large exposure to equities, in particular small caps and quality emerging markets stocks.

"However, my holding in CF Ruffer Total Return (GB00B58BQH88) aims to give my portfolio some allocation to different assets - even though it still holds equities - and be an element of stability should equity markets fall. Although I have no intention of selling my investments for decades, and I very much doubt I will lose my job. I like the idea that part of my portfolio should behave more like cash but still have the potential for greater growth. The relatively defensive equity fund, CF Woodford Equity Income* (GB00BLRZQC88), has the potential to achieve higher returns than one would expect from its level of risk, and it will help balance my higher risk holdings.

"I live in a mortgage-free property, and have the ability to invest between £350 and £500 a month. I am engaged but have no dependants.

"I realise that active management fees have a significant impact over time and that some people argue long-term investors shouldn't hold them at all. However, I am currently happy to pay for high-quality funds with reputable managers that stand a good chance of outperforming.

"I believe that after a few positive years for equities we could be heading into a period of volatility due to interest rate rises in the US and UK, slowing Chinese growth, and geopolitical issues. In this environment I believe active management can pay dividends, and I would not feel confident holding tracker funds over the next one to two years. First State Asia Pacific Leaders'* (GB0033874768) underweighting of China in recent times is a great example of talented managers adding value.

"All my funds are held in a stocks-and-shares individual savings account (Isa).

"Being quite a young, long-term investor I am not concerned by my high exposure to equities, as I will be able to ride out volatility. However, I would be interested to hear the experts' views on whether I should include other assets such as commercial property funds and strategic bond funds.

"My most recent trades were selling direct holdings in GlaxoSmithKline (GSK), Rolls-Royce (RR.) and Imperial Tobacco (IMT), and purchasing CF Woodford Equity Income. I quickly realised that I do not have the time to monitor individual companies. The lack of diversity was also creating unnecessary volatility. I switched into CF Woodford Equity Income because it has capital allocated to these defensive blue chips as well as smaller companies with growth potential.

"I also recently bought Artemis European Opportunities (GB00B6WFCR53) as I believe Europe's stock markets will perform well over the medium term due to a number of reasons, including quantitative easing, low wages and recovering economies.

"I have on my watch list Allianz Technology Trust* (ATT), UK Commercial Property Trust (UKCM) and Henderson Strategic Bond Fund* (GB0007495293)."

Our reader's portfolio

*IC Top 100 Fund

THE BIG PICTURE

Jason Stather-Lodge, chief executive officer of OCM Wealth Management, says:

As a debt-free 30-year-old looking to build up a retirement fund for your early 60s, you can afford to adopt a medium- to high-risk investment strategy. However, it is also important to consider your short- to medium-term goals. For example, are your current cash reserves sufficient to act as an emergency fund and also potentially contribute towards future expenses, such as the cost of your forthcoming wedding and honeymoon, or a new home? You may need to carve out a separate cash savings strategy to meet short- to medium-term goals.

While we support your regular savings strategy via your Isa, if you are a higher-rate taxpayer you should also consider making contributions to a pension to save income tax. Your employer may be able to match your contributions which would boost the funds potentially available in your retirement years.

Adrian Lowcock, head of investing, AXA Wealth, says:

You are in a fantastic position to invest - no mortgage at 30 is truly enviable. You have a good grasp of some of the basics and your focus on the longer term is very wise. One suggestion I would make is to lower your annualised growth expectations: 7 to 8 per cent a year after fees is high, particularly now that we live in a low growth and low inflation environment. Given your long time horizon your primary objective should be to beat inflation, and at the moment even 5 per cent growth rates would do that very comfortably. Having high expectations can lead to disappointment in performance and making potentially rash decisions, but with more realistic growth expectations you can better estimate what you need to save to meet your objectives.

With your long-term focus it is worth considering a self-invested personal pension (Sipp) for your investments, as you can put up to £40,000 a year into it and get income tax relief of at least 20 per cent on any contributions. The downside is that your money is tied up for the longer term and not obtainable in an emergency.

Although you believe your job is quite secure it is important to plan for the unexpected. Whether that is job loss, changes in your health or family circumstances, it is critically important to have the flexibility to be able to react to unforeseen changes. This means you won't be forced to sell an investment at possibly the worst time.

YOUR CURRENT INVESTMENT STRATEGY

Jason Stather-Lodge, chief executive officer of OCM Wealth Management, says:

A 30 year time horizon supports the case for a higher risk profile, using collectives and aggressive exchange traded funds (ETFs) or a share-biased strategy, which should meet your annual growth target of 8 per cent.

I concur with your argument for using active fund managers. While you are growing your investment portfolio, it is not practical for you to spread it across too many sectors or locations, so an active fund manager will make these decisions on your behalf.

I cannot see any real advantage in spreading your monthly savings sum of between £350 and £500 across too many funds. Focus on the asset allocation first using a top-down macroeconomic approach, analysing the expected contribution of the assets in the portfolio. Avoid replication by investing across a number of funds that essentially offer the same or similar asset allocation. As the portfolio grows you can add further funds to diversify.

I would also stress the importance of keeping your strategy and the underlying funds under regular review. As you favour actively managed funds it is important that you check the managers are delivering the added value you are paying for, when compared with their peers or relative benchmarks and indices. As the portfolio value increases you may be in a position to refine the asset allocation and potentially include more specialist sectors.

Laith Khalaf, senior analyst, Hargreaves Lansdown

You have a nice blend of sectors and styles, while the overall shape is suited to your goals and appropriate for your attitude to risk. The UK holdings provide a core equity base, and are split across both large- and small-cap equities with two very good fund managers.

CF Ruffer Total Return Fund provides some ballast and should offer some protection in times of strife. The Ruffer team claims, with some justification, that its conservative approach does not hamper long-term returns. They may not make quite as much in the good times, but by sheltering capital in bad times they aim to come out ahead overall.

First State Asia Pacific Leaders offers investors access to an exciting growth area of the world, despite the recent turmoil. All investors in their 30s and 40s should consider owning at least a slice of the Asian growth story, and now the region is out of favour it looks like a reasonable time to buy. Or by saving lump sums regularly you could take timing out of the equation and invest across the dips and peaks. The First State team takes a conservative approach to this higher-risk area, which makes it a good option as you place importance on capital preservation.

Artemis European Opportunities Fund appears to be more of a tactical position, which I agree with, but it could also happily sit in the long-term strategic bucket. Europe is home to many great companies and it looks like it might be starting on the healing process.

I would be wary of investing in commercial property funds because the ongoing costs are so heavy they erode returns, making investment relatively less attractive than other asset classes. I would also question the need for a strategic bond fund given your age. For that 'ballast' bit of your portfolio I prefer total return funds such as Ruffer, Troy Trojan (GB00B01BP952) and Newton Real Return* (GB0001642635), particularly given the current state of the bond market.

DIVERSIFICATION

Jason Stather-Lodge, chief executive officer of OCM Wealth Management, says:

You can adopt an investment strategy that is biased towards high-risk assets due to your age, risk profile and timescale, and because paying in monthly alleviates some of the risk of volatility due to pound cost averaging. However, the old adage of not 'keeping all your eggs in one basket' also rings true.

It is rarely advisable to take large bets on any one asset class, so a diversified portfolio - which is structured to achieve a balance, and of which the assets are selected on a contribution and risk basis - would be a better way of protecting against market volatility and future inflation. It could also offer some protection against market shocks.

The make-up of your investment portfolio is 26 per cent absolute return and 74 per cent shares, of which 17 per cent is invested in Europe, 16 per cent in Asia and 67 per cent in the UK.

I am not convinced that CF Ruffer Total Return Fund is appropriate for a modest portfolio value, and instead would propose an overall alternative asset allocation of 75 per cent equity, 15 per cent commercial property and 10 per cent fixed interest.

Commercial property has historically not been correlated with equities, with the exception of the leveraged downturns experienced in 2008, so it offers some protection against stock market volatility. To this end I would propose a fund that directly invests in property. This will form a bedrock and we would expect a steady contribution of yield and growth of 7 per cent a year.

I have suggested adding fixed interest and a good option just now would be a strategic bond fund that has the ability to invest in higher-yielding corporate bond markets and specialist bonds. Strategic bond funds offer their managers flexibility to move between the different gradings of fixed-interest holdings.

Of the 75 per cent in equities, I would suggest building a portfolio that is split geographically, with 20 per cent in the UK, 20 per cent in Europe and 20 per cent in the US, with a balanced diversification between mid- and large-cap corporates.

I would also allocate 7.5 per cent to India, 5 per cent to Japan and the remaining 2.5 per cent to emerging markets funds that have a bias towards the consumer and technology sectors. Emerging markets and Asian equities will help to provide some long-term inflation protection.

I suggest building a portfolio that has exposure to industrials, financials, consumer discretionary, telecoms media and technology, banks and healthcare. These sectors are expected to outperform from where we are positioned in the economic cycle.  

Adrian Lowcock, head of investing, AXA Wealth

Given you don't need the income it is understandable that your focus is on potential high-growth areas that may be riskier. However, it is important to consider both income and growth to deliver your total return. Although you hold CF Woodford Equity Income Fund for its defensive characteristics, I would consider it equally suitable for your long-term objectives. The power of compounding - getting dividends on your reinvested dividends - is an outstanding strategy which will go a long way to driving your portfolio's growth.

There is a saying that you have to speculate to accumulate when it comes to investing, and this is in some ways true. However, it is not always true that the higher risk of an investment, the higher the return. There are several investment strategies that don't follow this philosophy, and equity income is one of those.

Having a diversified portfolio across a number of asset classes is another way to reduce the risk without reducing the return over the longer run. You have already taken some steps to diversify it, and while I agree that having a high equity component is right for you at present, further diversification will make a lot of sense.

Although the bond market looks expensive relative to equities and yields are pretty low, there are still funds that can make money using an array of tools to deliver positive returns, even in a falling market. Examples include BlackRock Fixed Income Global Opportunities (GB00B80LD761).

*IC Top 100 Fund

**None of the above should be regarded as advice. It is general information based on a snapshot of the reader's circumstances.