Ruth Black has been expanding her portfolio for the past 15 years with a view to paying for big one off expenses and passing money on to her children and grandchildren.
Chris Dillow, economist, Investors Chronicle:
This portfolio has achieved something which eludes a lot of good investors. You've managed to avoid the problem that your fund holdings merely duplicate your direct equity holdings. As a result, your overall share holdings are quite nicely diversified.
This is because your funds do a different job from your shares. Your biggest investment trust holdings, Alliance and Witan, give you exposure to global markets. Your equity holdings, though, have two biases. One is a cyclical bent. If or when the global economy recovers, there's a fair chance James Halstead, Braemar, the banks and Persimmon would do especially well - assuming they survive long enough to see the recovery. Balancing this, however, is a defensive bias, embodied by your holdings of Unilever, United Utilities and Dairy Crest among others. I like this; defensives do better than they should over the long run.
Thanks to this, your holdings are well diversified. In the last three years, correlations between Alliance Trust - your biggest holding - and your biggest share holdings have been low: 0.14 for James Halstead; 0.2 for Braemar and just 0.04 for Unilever (for monthly price changes). This means that, in normal times, there's a fair chance (better than for many funds and shares) that losses on Alliance will be offset by gains on your shares, or vice versa.
Of course, this didn't much protect you from 2008's losses. But that's not because this is a bad portfolio. It's because of a nasty fact about stock markets - that correlations between shares rise in bad times.
You do, however, have a different problem - one I have as well. What should we do with our fixed rate bonds that mature this summer?
The nominal rates we'll be offered to reinvest the cash will be nugatory. Worse still, real rates might actually be negative, because consumer prices will probably rise between 2009 and 2010.
Faced with this prospect, many of us might be tempted to seek income by buying higher-yielding shares. But be careful. Interest rates are low precisely because the stock market is unusually risky - because no-one knows when the economic recovery is coming. It would, therefore be perverse to regard low rates as a reason to buy shares - especially higher yielding ones, because a high yield is a sign of high risk.
Of course, high risks can pay off spectacularly, especially early in an economic recovery. Whether you want to take these risks, however, is a question that should not be influenced much by the fact that interest rates are low.
Instead, I'd consider simply leaving cash in floating rate accounts. This means we'd benefit from rising rates if the economy does recover, whilst protecting ourselves from equity losses if it doesn't. We'd also have ready cash to pick up some bargains, if you fancy a bit of bottom-fishing.
Richard Hunter, head of equities, Hargreaves Lansdown:
This is a portfolio which at first glance has some degree of diversification, but there are a number of questions which should be addressed.
First, the main objective is the preservation of capital, available for major items of expenditure as necessary and potentially to be passed on to other family members in due course. At the same time, there is a requirement for "limited risks".
Particularly in the current environment, this attitude to risk means that if the portfolio were starting from scratch today, there might not even be any direct exposure to equities at all. To some small degree, there might be an argument for some managed funds exposure, but individual equities (particularly some of the smaller, yet disproportionately large holdings) must be seen as medium to higher risk.
Indeed, the last three purchases have increased an already large exposure to companies which have dependencies on either the mortgage or property markets, a call which is not without risk in the current environment.
Outside of this, the Investment Trust and Unit Trust section of the portfolio should at least provide some degree of diversification.
Further on, the preference shares carry a higher degree of risk since they are as stable as the underlying company issuing them. Meanwhile, the PIBS fall into a similar category – they can be higher yielding, but this is partly reflection of the risk associated with them. There is no access to the Financial Services Compensation scheme, for example, should the issuer go bust and, in such an event, PIBS holders would rank below all other creditors. In addition, should the issuer decide for any reason to miss a payment, the interest is non-cumulative, that is the income would not be replaced.
