Fred Griffiths is a retired chartered surveyor, aged 87. He and his 85-year-old wife have been saving and investing for many years in individual savings accounts and pensions.
Fred says: "Our objective has been to build an income fund to help with the sort of expenses we are likely to meet in later life, such as healthcare and care homes. Thankfully, we are both presently fit and in good health. We have a dog!
"With regard to our shares portfolio, my wife has left the selection to me and my trusty Investors Chronicle. As we have other investments, our attitude to risk has been medium and geared to income, my selection favouring quality UK large-cap companies and investment trusts.
"This simple policy appears to have served the portfolio well, but is not consistent with policies suggested for investors of our age, which should lean more to wealth preservation.
"My recent readings lead me to wonder: Have we too many holdings? Are we sufficiently diversified among companies and sectors? Am I aware many shares are duplicated in investment trusts? A review of our portfolio is long overdue needing particular skills that I do not have.
"Except for our state pensions, all our savings and investments are jointly owned in equal shares and our incomes are pooled in our joint current account. We therefore regard it as a family portfolio."
Individual savings account
Later life healthcare expenses
FRED'S FAMILY PORTFOLIO
| Investment | Total cost £ inc charges | Value £ | Gain/loss £ | Dividends received in 2013/14 £ | % yield on capital invested |
| Isa holdings | |||||
| Equities | |||||
| Astrazeneca (AZN) | 23,714 | 36,156 | 12,442 | 1,486 | 6.3 |
| Aviva (AV.) | 12,160 | 7,976 | -4,184 | 223 | 1.8 |
| British American Tobacco (BATS) | 12,458 | 30,102 | 17,644 | 1,150 | 9.2 |
| BHP Billiton (BLT) | 5,462 | 3,792 | -1,670 | 208 | 3.8 |
| British Land Company (BLND) | 7,949 | 9,741 | 1,791 | 305 | 3.8 |
| BT Group (BT.A) | 23,551 | 34,119 | 10,568 | 727 | 3.1 |
| Centrica (CNA) | 7,598 | 7,756 | 158 | 468 | 6.2 |
| GlaxoSmithKline (GSK) | 8,855 | 10,171 | 1,317 | 406 | 4.6 |
| HSBC Holdings (HSBA) | 16,426 | 15,457 | -969 | 461 | 2.8 |
| Land Securities Group (LAND) | 6,973 | 18,001 | 11,028 | 411 | 5.9 |
| National Grid (NG.) | 27,196 | 47,989 | 20,793 | 2,099 | 7.7 |
| Pennon Group (PNN) | 4,980 | 7,890 | 2,910 | 263 | 5.3 |
| Rio Tinto (RIO) | 7,843 | 6,997 | -846 | 185 | 2.4 |
| Royal Dutch Shell B (RDSB) | 25,512 | 42,143 | 16,631 | 2434 | 9.5 |
| Sainsbury J (SBRY) | 15,480 | 11,295 | -4,185 | 700 | 4.5 |
| SSE (SSE) | 10,607 | 20,563 | 9,956 | 1,040 | 9.8 |
| Severn Trent (SVT) | 12,838 | 26,364 | 13,526 | 910 | 7.1 |
| Standard Life (SL.) | 3,244 | 7,305 | 4,061 | 417 | 12.9 |
| Unilever (ULVR) | 7,597 | 12,992 | 5,394 | 375 | 4.9 |
| United Utilities (UU.) | 18,049 | 34,262 | 16,213 | 1,181 | 6.5 |
| Vodafone Group (VOD) | 20,685 | 20,150 | -535 | 1,476 | 7.1 |
| Investment Trusts | |||||
| Merchants Trust (MRCH) | 24,402 | 31,059 | 6,657 | 1,474 | 6.0 |
| Murray International (MYI) | 9,714 | 12,197 | 2,483 | 488 | 5.0 |
| City Merchants High Yield (CHY) | 18,181 | 18,428 | 246 | 975 | 5.4 |
| City of London IT (CTY) | 11,371 | 15,777 | 4,405 | 550 | 4.8 |
| Edinburgh Investment Trust (EDIN) | 11,058 | 15,312 | 4,254 | 502 | 4.5 |
| Henderson High Income Trust (HHI) | 9,643 | 11,640 | 1,997 | 501 | 5.2 |
| Securities Trust of Scotland (STS) | 4,945 | 4,976 | 31 | 165 | 3.3 |
| Shires Income (SHRS) | 1,7871 | 16,290 | -1,581 | 779 | 4.4 |
| Keystone Investment Trust (KIT) | 4,953 | 6,151 | 1,198 | 188 | 3.8 |
| Standard Life Property Income (SLI) | 8,936 | 10,592 | 1,656 | 446 | 5.0 |
| HICL Infrastructure (HICL) | 8,629 | 9,325 | 696 | 414 | 4.8 |
| F&C Commercial Property (FCPT) | 4,181 | 4,473 | 291 | 195 | 4.7 |
| John Laing Infrastructure (JLIF) | 9,140 | 9,045 | -95 | 475 | 5.2 |
| Funds | |||||
| Jupiter Strategic Bond Inc (GB00B2RBBC80) | 10,050 | 10,230 | 180 | 514 | 5.1 |
| Blackrock Corporate Bond A Inc (GB0003749982) | 9,717 | 10,175 | 458 | 391 | 4.0 |
| Newton Global Income (GB00B0MY6T00) | 10,265 | 10,492 | 227 | 460 | 4.5 |
| Newton Real Return (GB0006780323) | 5,172 | 5,172 | 0 | 0 | 0.0 |
| Cash | |||||
| Cash in Isa awaiting investment | 12,000 | ||||
| Emergency cash in current account | 16,000 | ||||
| NON ISA HOLDINGS | |||||
| M&G Optimal Income (GB00B1H05718) | 14,804 | 16,675 | 1,841 | 327 | |
| M&G Corporate Bond (GB00B1YBRM66) | 20,620 | 23,000 | 2,380 | 594 | |
| Jupiter Strategic Bond Inc (GB00B2RBBC80) | 15,062 | 16,500 | 1,434 | 774 | |
| AVERAGE YIELD ON CAPITAL INVESTED | 5.4 | ||||
| Other holdings | |||||
| Friends Life and Standard Life distribution bonds | 1,0000 | 158,000 | 4,000 | ||
| Standard Life Managed fund pension | 116,000 | ||||
| Private & State Pensions (including wife's) | 25,000 | ||||
| Income from Commercial Property | 19,000 | ||||
| Own Home (No Mortgage) | 500,000 | ||||
| TOTAL | £1,458,729 | £75,137 | 5.2% |
Source: Investors Chronicle
MANAGING RISK IN YOUR EIGHTIES
Chris Dillow, Investors Chronicle's economist, says:
You ask whether, given your age, you should lean more to wealth preservation than accumulation? In considering this, I would ignore the conventional advice that older people should be more conservative.
Such advice might well be wrong because shares are not necessarily riskier for older people.
Yes, someone of your age faces especial equity risk because - let's be blunt - there is a danger that the market will fall and you won't live long enough to see it bounce back. But your age means you are free from another really nasty danger - that the market might fall and stay low with the result one suffers decades of negative returns; this has been the fate of Japanese investors since 1989.
These two risks cancel out, with the result that – in many cases – age alone should not affect your portfolio composition.
Instead, the question of whether you're taking too much risk should rest upon your personal circumstances. Is your pension income from outside this portfolio sufficient to tide you over if stock markets fall? There's around a one-in-10 chance that your portfolio will fall 20 per cent or more in the next three years: could you cope with this?
And then there are bequests to consider. In effect, you are sharing equity risk with your inheritors, because gains and losses affect them as well as you. In this sense, risk is pooled and so more bearable.
Questions such as these - and not the mere fact of your age - should determine your equity exposure. Yes, you have lots of this exposure, but I can easily imagine that it might be right for you.
Steve Wilson, director of Alan Steel Asset Management says:
Your main objectives are to have adequate funding for healthcare/long-term care and the simple answer is you have likely more than enough assets to cover this for both you and your wife. In fact the average length of time in a care home is only three years as people tend to have care in the community, ie your own home first before paying for any nursing home fees.
Presumably you and your wife have some pension income too so that could offset some of the care fees.
Other than that it's important to have things invested tax efficiently through Isas and utilise capital gains tax (CGT) exemptions where appropriate. That means any care fees could be paid out of tax efficient income if required. You each have a CGT allowance of £11,100 for the 2015/16 tax year.
In terms of the underlying funds you haven't been afraid to take risk. Even despite the poor interest rates some cash should be held as a backstop.
That said the traditionally lower-risk assets such as government bonds, property, corporate bonds don't look attractive right now offering poor yields and risks to capital.
That's why many have looked to equities for better yields from world class businesses and large cap stocks. That's a trend I think will continue and a result of loose monetary policy from central bankers.
HOW TO IMPROVE YOUR PORTFOLIO
Mr Dillow says...
Looking at your portfolio composition, your direct equity holdings, except for BHP Billiton (BLT) and Rio Tinto (RIO), look like a classic defensive portfolio comprising large low-beta holdings. I applaud this. We have long-term evidence from around the world that such stocks tend on average to do better than they should. This might be because some investors chase exciting stocks too much. Or it might be because some fund managers fear under-performing a rising market and so avoid defensives. Either way, such stocks are often under-priced and so offer better than average returns.
So, congratulations on that.
Where I'm not so happy is your investment trust holdings.
To see the problem, consider Shires Income (SHRS). Its five biggest holdings include Royal Dutch Shell (RDSB), AstraZeneca (AZN), British American Tobacco (BATS) and HSBC Holdings (HSBA). These duplicate your direct equity holdings. They also duplicate holdings by Henderson High Income (HHI): its biggest investments also include BAT, AstraZeneca and Royal Dutch. And Merchants Trust (MRCH) also has big holdings in HSBC and Royal Dutch. There's not much diversification here. If or when the market falls, losses on your direct shareholdings will be accompanied by losses on your investment trusts.
Sure, these stocks are defensive. But defensiveness is only relative: if the market falls a lot, these stocks would probably also fall - just not as much.
Mr Wilson says...
Unfortunately, you are too concentrated within the portfolio on large cap UK equities. The correlation is high between Henderson High Income, Shires Income and Merchants Trust all investing in the UK large cap FTSE 100 stocks.
When you combine those with the £410k or so in direct equities that you have that's too much exposure to the one area of the market as those equities are broadly the same, ie AstraZeneca, BATs and Vodafone.
The distribution funds that you hold from Friends Life will likely be the old Axa Distribution fund which combines equities with index-linked gilts. The index-linked gilts I'd be happy with but you should be mindful that the UK equity exposure within those distribution funds again is UK stocks such as Vodafone and AstraZeneca.
YOU NEED TO DIVERSIFY
Mr Dillow says...
You might think your infrastructure and commercial property trusts are offering some diversification. But I'm not sure how much. Infrastructure and commercial property are illiquid. This means that, in bad times, these funds might fall to a big discount to net asset value to reflect investors' aversion to illiquidity: this is what happened in 2008. You might, therefore, be exposed to correlation risk - the danger that, in bad times, previously lowly correlated assets become correlated.
Your mistake here, though, isn't a horrible one: in average times, returns should be high enough to compensate for this risk. And it is a common one: many investors judge assets by their individual attractions and fail to ask what impact they have on their portfolio as a whole. This question, though, suggests you might consider simplifying some of your trust holdings.
Mr Wilson says...
To diversify if you are still comfortable taking risk then you should look to have some US and global exposure along with Far East. The UK small cap space is also undervalued with valuations not as stretched as some of the larger cap stocks.
With most of the 'noise' around Europe just now there is perhaps an opportunity to buy in at lower prices and trim some of the profits from the UK space.
Finally, you could benefit from some additional exposure to property and infrastructure funds that will provide a nice income and a good diversifier from the rest of the portfolio.
SUGGESTED NEW HOLDINGS
Moira O'Neill, personal finance editor at Investors Chronicle says:
Based on Steve Wilson's asset allocation recommendations, and your preference for investment trusts, you could look at the following investment trusts selected from the IC Top 100 Funds.
■ US
JP Morgan US Smaller Companies (JUSC) aims to achieve long-term capital growth from investing in US micro cap companies. It is trading at a 4.7 discount to its underlying net asset value.
■ Global
F&C Global Smaller Companies (FCS) aims to achieve high returns by investing in smaller companies worldwide and has an excellent track record of beating its benchmark. It is trading at par, compared to a 12 month average premium of 0.61 per cent.
■ Far East
Edinburgh Dragon Trust (EFM) aims to provide long-term capital growth through investments in the Far East exclusing Japan and Australasia. It is trading at a 11 per cent discount compared with its 12-month average discount of 10 per cent.
■ UK smaller companies
Standard Life UK Smaller Companies (SLS) aims to achieve long-term capital growth through investing in small UK quoted companies. It is trading at a 10 per cent discount compared with its 12 month average discount of 7 per cent.
■ Europe
Jupiter European Opportunities (JEO) aims to achieve capital growth through investments in European securities. It is trading at a 0.8 per cent premium, compares with a 12 month average premium of 0.19 per cent.
■ Property
You could top up on your existing commercial property trusts or consider adding Picton Property Income (PCTN), which aims to achieve attractive income levels and capital growth potential through investment in UK property and has a yield of 4.65 per cent. It is trading at a 3.5 per cent premium to net asset value, compared with a 12 month average premium of 5.7 per cent.
■ Infrastructure
Your holding in HICL Infrastructure (HICL) is trading at a 14 per cent premium to NAV. Consider adding First State Global Listed Infrastructure (GB00B24HJC53), an open-ended fund that gives access to this sector.
