Combining growth with the need for liquidity

In addition to his share portfolio and individual savings account (Isa), he has about £30,000 in a workplace pension scheme with Aegon, and £4,000 in peer-to-peer loans via Funding Circle.

"I may have a need for cash over the next five years so I am looking to grow my capital as fast as possible in that period," says Imran. "We could conceivably start a family and/or buy a property together over the next five years, hence the need for some liquid assets.

"I am also the only child of elderly parents with few assets of their own - their home is worth about £250,000 and remortgaged, and they are still paying that off. So I want to be able to pay for their care or buy/rent a home for them closer to me in outer London in the event that they become ill or one of them passes away.

"At the moment I am relatively comfortable with risk and would be prepared to lose 15-20 per cent in any given year.

"When I started investing I invested relatively small amounts - hundreds of pounds - in shares. Now I am trying to be contrarian and long-term.

"I treat my Nutmeg-managed Isa as my safe low-risk base, and try to introduce higher risk into my self-managed share portfolio. I want it to be better diversified, as much of it and my other investments are very UK-focused.

"I'm interested in science and technology, so that probably biases me towards certain types of companies and industries."

My last three purchases were:

27 Tesla (TSLA:NSQ) shares at a book cost of £3,847.

113 Rio Tinto (RIO) shares at a book cost of £2,081.

36 shares in iShares MSCI Japan Small Cap ETF (ISJP) at a book cost of £1,476.

"I recently sold Taylor Wimpey (TW.) shares worth £2,000 at a 10 per cent profit because I thought I was overexposed to UK property as I also hold Rightmove (RMV).

"And I sold £2,000-worth of shares in SSE (SSE) and Royal Mail (RMG) at a loss of around 5 per cent."

Imran's portfolio

THE BIG PICTURE

Chris Dillow, Investors Chronicle's economist, says:

There's a paradox here. On the one hand, you say you want to grow capital "as fast as possible" and are "relatively comfortable with risk". But on the other, your portfolio has a big weighting in low-risk assets. Gilts and gold probably offer decent diversification against equity risk. But this comes at the price of low returns - probably negative after inflation - if we see normalish market conditions. This is the portfolio of someone willing to sacrifice returns to reduce risk.

That said, such a position isn't entirely unwise: because you want to buy a property in a few years' time lots of assets are quite dangerous for you. Ones that are vulnerable to liquidity risk, such as commercial property or private equity funds are unsuitable, because you might not be able to sell these at a decent price when you want to buy. The best time to buy a house would be after a recession or financial crisis has depressed their prices. But these would be circumstances in which liquidity risk as well as cyclical risk might be hitting lots of assets.

Your need for liquidity suggests that mainstream equities and bonds would be suitable. A possible addition here might be a help-to-buy Isa: in effect, this offers free money to potential first-time buyers so is that rare but beautiful thing - a liquid asset with a high return.

Paul Taylor, chief investment officer at McCarthy Taylor, says:

If you need cash within five years you should not be investing in anything beyond bank deposits to avoid losing value. Your portfolio is relatively modest and we would recommend you view your Isa and other investments as one entity, to match risk to asset allocation. Your current asset allocation is 32 per cent bonds and 56 per cent equity - excluding your pension and peer-to-peer loans - and about right for moderate risk exposure.

Peer-to-peer lending is potentially illiquid and high risk so is only suitable for higher-risk investors.

And I would not recommend directly investing in equities as small holdings are usually inefficient because of dealing costs, and it is not possible to buy enough positions to get adequate diversification. Collective funds are much more appropriate.

Jason Witcombe, certified financial planner at Evolve, says:

Taking an active approach to personal financial planning decisions is likely to yield the best long-term results. As an example of taking an active approach to personal finance, one decision you have each year is how much to save into each tax wrapper. At a simple level this is pension versus Isa.

Your income is around £100,000 a year. If it is just under this you can get 40 per cent tax relief on pension contributions, which is very generous.

If it is just over £100,000 you can achieve an effective 60 per cent rate. This is because once income exceeds £100,000 you lose your £11,000 tax-free personal allowance at a rate of £1 for every £2 of income over £100,000. However, you can get it back if you make a pension contribution. This means that if an investor's income was £110,000, with that top £10,000 of income they would have a choice of whether to put £10,000 into a pension fund or £4,000 into their pocket.

But the tax breaks need to be weighed up against the lack of accessibility of a pension: it won't help you buy a property, but could form part of an overall strategy.

HOW TO IMPROVE THE PORTFOLIO

Chris Dillow says:

I have a problem with your equity holdings. These seem weighted to high-beta stocks - banks and Rio Tinto - and speculative ones - Tesla and Victoria Oil & Gas (VOG). I don't like this because history and theory warn us that these classes of equity tend to do badly on average over the long run.

A reason for this is that investors wanting a geared play on rising stock markets buy high-beta stocks, causing them to be, on average, overpriced. Another reason is that investors pay too much for the small chance of massive returns and perhaps are overconfident about their ability to spot future growth, causing speculative shares to be overpriced.

High-beta and speculative stocks will do well if investor sentiment continues to improve and perhaps Tesla will buck the general trend, but it would be risky to bet on this continuing over the next five years.

But there might be a solution. Think of your job as an asset: some of us have to use cash or gilts or gold as a hedge against equities, because assets such as these will give us wealth even if shares fall. Your job is just like them: if or when shares fall you can top up your wealth with the returns from your job, just as others top it up with returns from bonds.

How true this is depends on how safe your job is: the more chance there is of you losing it in a recession, the less of a diversifier it is. Insofar as it is safe, however, you might be able to shift out of gilts and into more equity trackers - whether these are global or UK is a secondary matter. Doing so would increase your chances of good longer-run returns.

How much you do this depends ultimately on your personal circumstances - your job security and your taste for risk. But the fundamental points hold: that for someone of your age your biggest asset is your ability to earn a good living, and your wealth in the long run will perhaps depend more on how much you save than precisely what you invest in, within reason. From this perspective, the fact that you're saving so much is a very good thing.

Paul Taylor says:

I estimate your weighting to gilts to be 26.22 per cent, Europe 6.03 per cent, Japan 8.59 per cent and commodities 8.14 per cent. But I think those weighting should ideally be reduced to 20 per cent, 5 per cent, 5 per cent and 3 per cent, respectively.

Ordinarily we would expect bonds and gilts to lose value as returns from other assets are more attractive and interest rates will rise over time. Political volatility and asset purchasing by central banks is overpricing bonds and at some point this should unwind and yields will rise.

You should introduce India, commercial property and infrastructure to your portfolio. Our preferred funds for accessing these areas are as follows.

■ Franklin India (LU0768358961) has an extremely experienced management team and an excellent performance record. The fund has low portfolio turnover as the managers are willing to take a long-term view, and it is less volatile than its benchmark. About 90 per cent of its assets are in giant and large-cap companies.

■ Kames Property Income (GB00BK6MJD59) does not have any allocation to central London and has a broad regional diversification. It offers an attractive yield of 4.7 per cent and its top five tenants are high quality. Its average property is worth about £12m, based on a fund size of £500m and 42 holdings.

■ International Public Partnerships (INPP) invests in high-quality infrastructure projects and has an attractive yield of about 4.3 per cent. It benefits from government-backed revenues and access to overseas markets. It is one of the least volatile of our preferred infrastructure holdings and has dividend cover of 1.48 times. Its price fell heavily in August 2015, but rallied in November so the trust is up more than 9 per cent in the year to date.

Jason Witcombe says:

When it comes to choosing the underlying investments for a portfolio, I favour low-cost, passive funds, with a focus on broad diversification and risk management. By all means hold some individual shares if they are companies that you take an active interest in, but in general I can't see any need for individual shares when you can buy the whole index so cheaply.

The Vanguard Life Strategy funds charge just 0.24 per cent a year and give you access to a globally diversified portfolio of equities and bonds. Using one of these funds or something similar would keep your investments simple and put that part of your personal financial planning on autopilot, freeing up time for you to spend on other areas of your finances.

You may be able to access a global equity tracker via your Aegon workplace pension, which you could use alongside the Ethical Lifestyle fund you hold.

Another key point is your investment timescale. Anything could happen to markets in the short term and your portfolio could drop by more than the 15-20 per cent you say you could tolerate. As you get closer to needing the money for your property purchase you might like to start moving increasing amounts of your portfolio into cash to lock in its value.