Young investor aims for house and pension

Hugo is relatively new to investing as he has only been doing it for two years. He became unsatisfied with the poor rates offered by bank accounts, so started reading Investors Chronicle to learn how to invest. He says: "I'm investing primarily for a pension but I might want some of the money to buy a house, so for that reason I'm reluctant to save into a Sipp, and I use a stock & shares Isa instead.

"By reading the IC every week - particularly Simon Thompson's bargain portfolio, I'm learning quickly and am prepared to take a medium to high risk approach with my investments. I am happy to risk part of my portfolio chasing bigger long-term gains, as at my age I know that if some stocks were to drop significantly, I have the time to ride them out.

"Each year I max out my stocks and shares/cash Isas, usually splitting the funds 50/50. But because I've only started investing recently, it is taking time to build up my stocks and shares Isa. As such, I also have a dealing account outside the Isa wrapper into which I have transferred other savings.

"I have few actively managed funds in my portfolio as I have been put off by the charges. That's why my portfolio is so biased towards shares. However, I have a couple of low cost Vanguard funds, which seem to be doing quite well. I am interested in finding out more about investment trusts.

"I was also looking at Japan as a market to get exposure to, but because it's looking a bit overcooked now, I'm worried I've missed the boat."

HUGO'S PORTFOLIOS

RECENT TRADES

Rolls Royce (buy), Vanguard FTSE UK equity index accumulation fund (addition), Thorntons (buy).

WATCHLIST

Moss Bros Group, Ashtead Group and Brown Group.

Sheridan Admans, investment research manager at The Share Centre, says:

It is good that you are planning for income in retirement. However, you say you want access to the capital to buy a house, and this could be a problem. You need to identify how much you believe you will need to save to buy a house and how much income you would like to achieve when you retire, and apportion how much you save into the two buckets. You might find you have a different risk capacity for each bucket.

A medium to high risk appetite may be appropriate for retirement planning given your age, but it may not be for saving for a deposit on a mortgage, where a deposit account or lower risk investments may be more appropriate. While a deposit account pays little interest, it is unlikely you will suffer a capital loss, which is highly possible in a stocks and shares portfolio.

You could diversify your portfolio further as you are very focused on five sectors - financials, resources, property, engineering and retail.

A number of your stock investments are trading on low price to earnings (PE) ratios indicating that they have been out of favour and potentially undervalued. You should be careful, though, as a low PE ratio may indicate that earnings aren't sustainable. You could do with a bit more understanding of a company's growth prospects, and the best place to get a good understanding of that is to do general reading around the products, services and the sector in which the company operates, as well as the company's financial reports.

If you want to diversify your portfolio, you could consider buying shares in William Hill (WMH), the betting shop. Mobile technology is making gambling more accessible - no longer do you have to walk into high street bookmakers, which some may have found intimidating. Bookmakers have also been expanding their services and what they take bets on, appealing to a wider demographic.

We have recently upgraded our recommendation on William Hill to a 'buy'. It's trading at 16 times price to earnings, and we are optimistic that the attention it has paid to its corporate structure and strategy should start to pay off.

For a high risk play, you could also consider buying Monetise (MONI), as there has been renewed interest in it recently following its new deal with Telefonica. This follows on from recent deals with Lloyds, Visa Card Europe and hedge fund manager Leon Cooperman, who believe it's a "five bagger".

Monitise reported interim encouraging results. Strong demand saw revenues jump to £27.8m up from £17.1m for the same period last year. And gross margins improved, while earnings before interest tax and depreciation experienced a loss, which reflected the acquisition of Clairmail Inc.

And there's some doubling up going on in the portfolio as well - for example, Heritage Oil (HOIL) and Cairn Energy (CNE) both operate in oil exploration industries in frontier markets. Of the two, Cairn has a better track record, more mature assets and a strong balance sheet, so Heritage would be the one to exit there.

Lee Robertson, chartered financial planner at Investment Quorum, says:

You are right to avoid the banks if your growth objective is beating the FTSE 100. You are a relatively new investor, but you are quickly gaining in experience and are prepared to take a medium to high risk approach to your investments.

At this stage, you should continue to utilise your Isa allowances where possible and access share and fund purchases via a discount platform as you are currently doing. Utilising income yield reinvested for growth is also a sound and well proven strategy.

I would make a couple of points based upon your objectives of beating the FTSE 100. The Vanguard FTSE Equity Index Fund is an excellent choice as it has a low tracking error to the index, albeit the FTSE All-Share and not the 100.

The Blackrock UK Income Fund is an interesting fund as it is not performing particularly well at the moment and is fourth quartile in its sector, although over the longer term has done better.

The Aberdeen Latin American Equity is a new fund and is also towards the bottom of the tables, although this is a sector which should reward patient investors over the longer term.

Nick Hungerford, chief executive at Nutmeg, says:

You have two distinct goals, but it doesn't mean there has to be two different portfolios with different profiles. It just means when the certainty of those aims becomes clearer, you can adjust your portfolio accordingly.

You have a good mix of funds and equities - but you have missed some major hotspots. The world's biggest market - the US - has not been included, and nor has Japan - another important world market that has done very well this year. But the real diversification problem in the portfolio is that it's 100 per cent invested in equities. You could get similar levels of volatility and returns through other asset classes, such as commodities, while spreading your risk further.

There are also some currency risks in the portfolio. I'm wary of the Latin American fund you are holding - because it's mainly invested in Brazil, which has been absolutely decimated in recent months. And with regards to "missing the boat" with Japan, timing the market is one of the most dangerous games to play and you should avoid doing it. If you want to invest in a region then you should do it anyway.