Add some UK and US to your EM and Asia

"I started by dabbling with some very speculative and high-risk investments and, not unsurprisingly, they didn't do very well," says Stephen. "I tried to achieve growth by investing in small growing companies, but found I got too involved in what seemed like a good story which often didn't pan out, losing money. Fortunately, I didn't have much capital to play with so didn't lose very much - I look back on that time as my education in the markets. I only have one investment left in my portfolio like this - BrewDog - which is unlisted and for which there is no liquid market.

"About four years ago I decided to stop speculating and start investing, which led me to the portfolio of investment trusts I have today. I'm aiming to accumulate a pot of money that I can use when I retire, which I expect to be at least 25 years away. I don't have a hard goal for how much money I need to retire on as it seems quite a long way away and a lot can change in 25 years. I don't have any children or dependants, so don't see any need to use the investment pot for anything beyond when I decide to stop working. But if pushed for an answer, I would like to have accumulated at least £500,000 by the time I'm 65.

"I try to pay at least £500 into my individual savings account (Isa) every month, although holidays and other large discretionary outgoings sometimes prevent me from doing this. I also put £250 a month into my company pension scheme, which I helped my employer set up, but this has been running for less than a year so only has about £2,500 in it. However, I also have a final-salary pension which will be worth around £4,000 a year when I retire.

"I would like my investment portfolio to make an absolute return of at least 5 per cent a year. I would also like it to beat a benchmark made up of 50 per cent FTSE All-Share index and 50 per cent FTSE All World index on a quarterly basis, although I realise that I'm unlikely to do this more than half of the time.

"I would say that I have a medium to high attitude to risk: I'm prepared to see a drop in my portfolio value of 20 to 30 per cent in a year, realising that there is a good chance things will go up again. I have quite a lot of cash and would see a fall like this as a buying opportunity.

"But although I consider myself a reasonably high-risk investor, I worry that I'm not diversified enough. I hold very few bonds, which currently look very overpriced, although think my infrastructure holdings provide some bond-like exposure. I also have a lot of exposure to emerging markets, which has affected performance over the past couple of years. I've been trying to deal with that recently by buying funds more focused on developed markets.

"My aim is to capture global growth through investment trusts, supplemented with the occasional individual share bought at an attractive valuation. I have tried numerous different investing styles and realised that I don't have the time to monitor lots of shares, so the bulk of my portfolio is now made up of investment trusts with an international focus. I only buy individual shares if I have the time do the research and crunch the numbers, and can determine whether they look cheap with a reasonable margin for error.

"My last three trades were buying RIT Capital Partners (RCP), Edinburgh Dragon Trust (EFM) and Rights and Issues Investment Trust (RIII). I am considering topping up Rights and Issues, and investing in Henderson Smaller Companies Investment Trust (HSL) and CQS New City High Yield Fund (NCYF)."

Stephen's portfolio

THE BIG PICTURE

Chris Dillow, Investors Chronicle's economist, says:

You're saving a lot, which means that your objectives are achievable. If you keep saving £9,000 a year (or an equivalent amount uprated in line with inflation) then you should have over £500,000 in today's money by the age of 65, as long as real returns average around 5 per cent a year, which I reckon they should with average luck.

I also like that you learnt from the school of hard knocks. Around the world and over time growth stocks generally disappoint investors - especially the more speculative ones. The only question is why this should be. One possibility is that people pay too much for the small chance of big returns. Another is that they underestimate just how difficult it is for a company to maintain profits while it expands because so much can go wrong. For example, new technologies can fail or suffer teething troubles, managers can lose control of costs or overestimate demand, and new rivals can muscle in to the market.

But I don't like your target of beating a benchmark. Targets only make sense if we learn something from failing to hit our target, and I'm not sure your target would do this. What if you underperform for several months? That might just be bad luck, or because investor sentiment has turned irrationally bullish and caused well-diversified portfolios to underperform.

A better way to monitor performance would be to watch out for 200-day moving averages. If a share's price dips below this, it can be a sell signal. There's often momentum in asset prices, so selling when prices fall below their long-term average can get us out of prolonged bear markets.

Also watch discounts to net asset value (NAV) on investment trusts. These can be measures of investor sentiment. A high premium or low discount relative to the trust's own history can be a sign that investors are irrationally exuberant, while an unusually big discount can be a sign that investors have become too pessimistic.

Rob Morgan, pensions & investments analyst at Charles Stanley, says:

Within your pension, given the time you have until retirement, you may wish to consider reducing bond exposure until you get older. Bonds have benefited for many years from falling interest rates and investors have seen strong returns, but going forward equities offer far better growth prospects. Including bonds will dampen volatility, but as you are pound-cost averaging by investing monthly and have a long-term objective, I see little wrong in actually increasing equity exposure for the time being.

In terms of planning, a fund of £500,000 at 65 given your current level of saving is a realistic goal. However, if your objective is essentially retirement then concentrating on pension contributions may be preferable to topping up both Isa and pension. Securing pension tax relief in respect of any earnings at a higher rate of income tax would be highly efficient in maximising your pot and retirement income - especially if you drop a tax band when you move into retirement. If you feel restricted on fund choice, consider a self-invested personal pension (Sipp) for additional contributions on top of your work pension.

HOW TO IMPROVE THE PORTFOLIO

Chris Dillow says:

Your portfolio is about as well diversified as you can achieve given the brute mathematical fact that bundles of stocks will tend to move together simply because they all are exposed to market risk. You've got a couple of genuine stock and fund-pickers in Scottish Mortgage Investment Trust (SMT) and RIT Capital Partners; some defensives in Finsbury Growth & Income Trust (FGT) and HICL Infrastructure (HICL); and exposure to frontier markets that aren't as well integrated into the world economy as others, and so offer a chance of diversification.

I'm not sure your lack of bonds is so bad. The virtue of bonds is that they might offer a hedge against a fall in emerging markets. This is because the same pessimism about growth or heightened risk aversion that would hurt emerging markets, would probably also boost bond prices. On the other hand, bonds are expensive and would do badly if the world economy grows as expected. Given your tolerance of risk and decent cash holdings, a lack of them is defensible - as long as you feel comfortable with not holding them.

The only things I'd consider adding are a global equity tracker fund and perhaps a private equity fund: the latter would offer exposure to the possibility that good growth opportunities now exist beyond quoted equities.

Rob Morgan says:

I like the core and satellite approach you take in the Isa with key holdings such as RIT Capital Partners, Finsbury Growth & Income and Scottish Mortgage - all of which I am a fan of, alongside more esoteric funds such as BlackRock Frontiers Investment Trust (BRFI).

However, do note that Worldwide Healthcare Trust (WWH) and Biotech Growth Trust (BIOG) are run by the same management team.

I also like your use of investment trusts, which in the long term can offer superior returns through their use of gearing, although this will generally make day-to-day volatility higher. They are also more appropriate for investing in illiquid asset classes such as property and infrastructure.

Although diverse, I would say this portfolio is rather focused on Asia, emerging markets and specialist areas. I wouldn't argue against these areas offering strong growth prospects, but a few more mainstream US or global investments would provide some balance and be closer in terms of allocation to your 'benchmark index', although US equities are quite expensive right now relative to other areas. Over time your pension fund choices will gradually balance this for you, but you may also want to consider adding UK and US funds with new Isa contributions.

Phil Wong, investment manager, Redmayne-Bentley, says:

Over 20 per cent of your portfolio is weighted to emerging markets, frontier markets and Asia Pacific including Japan. Even for a medium- to high-risk investor like yourself, this seems a little too toppy. I would look to take this down, and seek to incorporate more global funds that offer exposure to these regions via a diversified rather than country-specific approach.

Murray International Trust (MYI) is a global fund that provides exposure to Asia Pacific and emerging markets. This investment trust trades at a slight discount to NAV while providing a yield of about 4 per cent, and its performance has picked up since the start of 2016.

Scottish Mortgage Investment Trust is the main source of US exposure in your portfolio, so I believe there is scope to increase the US allocation. The US is much further down the economic growth cycle than other developed nations, and hopes of business-friendly policies from the Trump administration continue to support the market. The US also has a low unemployment rate and a banking sector that is showing signs of increasing improvement.

I would allocate further to the US primarily through a global fund with a US bias such as Fundsmith Equity (GB00B41YBW71). This is a higher conviction portfolio investing in the quality end of the market where businesses have more transparent cash flows. Trump's 'America first' policy may also provide a conducive environment for US small- and mid-cap businesses to thrive, and a good way to tap into these could be JPMorgan US Smaller Companies Investment Trust (JUSC), which trades on a discount to NAV of about 1.5 per cent.

In today's fragile political and economic environment, diversification plays an increasingly important role. An increase in alternatives assets would be a prudent portfolio shift, given their lesser correlation to equities. International Public Partnerships (INPP) would build on your existing infrastructure exposure and provide some inflation hedging. Although the premiums to NAV on infrastructure trusts remain elevated, they have fallen from their historical highs so these are looking more attractive.

LXI REIT (LXI) run by Osprey Equity Partners has recently launched, and offers inflation hedging via the property sector. This real estate investment trust (Reit) aims for a target return of approximately 8 per cent a year via natural income and revaluation of property values, once the property portfolio is fully invested. Tenant leases are at least 20 years and its tenants include budget retailer Aldi and hotel chain Travelodge.

You have little fixed-interest exposure, but seeking value in this area has become more difficult given the outlook on interest rates and inflation. However, iShares $ TIPS UCITS ETF (ITPS) could benefit from the possibility that US inflation takes off.