Robert is a 56-year-old GP and has been investing for 30 years. He says: "I have always invested around £300 a month and tended to dip in for funds when needed. This would be for things like money towards a new car every three to four years."
This spending means his portfolio is not enormous - combined with his wife's holdings it totals £68,000.
However, when Robert retires next year he expects an index-linked NHS pension of £60,000 a year, plus a lump sum of around £300,000. He is looking forward to investing this and, as practice, he has been monitoring a dummy investment of £300,000 based on Hargreaves Lansdown's model portfolios.
He says: "I do take a daily interest in my portfolios and enjoy investing, but am a little apprehensive about how to manage such a large capital sum.
"My investments are all with Hargreaves Lansdown and I am happy to accept that I might pay a little more than the cheaper managers, but I do like the customer service and generic advice.
"Hargreaves suggests an 80/20 or 20/80 split for either growth or income.
"When I have my lump sum I wonder if I should simply invest in a few multi-manager funds or exchange-traded funds (ETFs), enlarge my current holdings or invest in a wider range of stocks and funds.
"Again Hargreaves has launched a service with model portfolios that are rebalanced once or twice a year. I do think rebalancing is quite difficult for individual investors to assess/monitor.
"I wonder about having perhaps £50,000 to invest in individual shares - not for day trading but perhaps for fairly frequent dabbling to occupy my retirement."
"Currently my wife - a non-earner - and I each have our investments in individual savings accounts (Isas). In the future it would be prudent to use our maximum allowance each year, but I am not sure of the best way of doing this. I guess with the recent tax changes one would want to keep dividend income outside the Isas under the £5,000 threshold.
"My wife also has a self-invested personal pension (Sipp) and I am proposing to keep topping this up for as long as possible - to age 75? She is a non-earner so can only put in £3,600 a year.
"I have quite a high tolerance of risk and over 30 years of investing have learnt not to get too concerned about scary financial headlines.
"Having experienced several big market falls over this time I tend not to panic sell - having said that I did sell an India investment trust due to some very pessimistic headlines just before the Indian stock market had one of its best years.
"I can afford to take some risk with the back-up of a good guaranteed pension income."
Isas and Sipps
Robert and his wife's portfolio
|Name of share or fund||Number of shares/units held||Price||Value||%|
|AXA Framlington Managed Balanced ZI Acc (GB00BGLC5L23)||3272||107.1p||£3,504||5|
|ETFS Physical Gold (PHGP)||16||7263.77p||£1,162||2|
|Invesco Perpetual Tactical Bond X Acc (GB00BJ04K711)||2481||204.01p||£5,061||7|
|Marlborough Multi Cap Income P Acc (GB00B907VX32)||2249||183.72p||£4,131||6|
|Templeton Emerging Markets Investment Trust (TEM)||408||416.5p||£1,699||2|
|Artemis Strategic Assets I Acc (GB00B3VDD431)||6524||76.23p||£4,973||7|
|BlackRock Gold & General D Acc (GB00B5ZNJ896)||121||589.9p||£713||1|
|Man GLG Technology Equity Professional Acc (GB00B0119J37)||1152||278.5p||£3,208||5|
|Hargreaves Lansdown Multi-Manager European A Acc (GB00BSD99K23)||2983||98.33p||£2,933||4|
|Lindsell Train Global Equity A (IE00B644PG05)||2302||£1.79||£4,120||6|
|M&G Optimal Income I Acc (GB00B1H05718)||2819||191.4p||£5,395||8|
|Neptune Russia & Greater Russia C Acc (GB00B86WB793)||1852||£0.63||£1,166||2|
|Templeton Frontier Markets A Inc (LU0390137114)||149||£17.86||£2,661||4|
|TR Property Investment Trust (TRY)||1360||301.5p||£4,100||6|
|Artemis Strategic Assets I Acc (GB00B3VDD431)||3870||76.23p||£2,950||4|
|HL Multi-Manager Special Situations Trust A Acc (GB0030281066)||3000||260.68p||£7,820||11|
|Marlborough Multi Cap Income P Acc (GB00B907VX32)||1071||183.72p||£1,967||3|
|Templeton Emerging Markets Investment Trust (TEM)||290||416.5p||£1,207||2|
|TR Property Investment Trust (TRY)||798||301.5p||£2,405||4|
|Woodford Patient Capital Trust (WPCT)||2000||106.7p||£2,134||3|
|WIFE'S cash Isa||£5,200||8|
Source: Investors Chronicle. Price and value as at 6 October 2015
THE BIG PICTURE
Chris Dillow, the Investors Chronicle's economist, says:
You say you are thinking about "fairly frequent dabbling" in the market when you retire. I would advise you against this.
Some research by Christopher Polk at the LSE and colleagues shows why. They show that the average fund manager has a handful of buy ideas that do beat the market. But the average fund manager doesn't beat the market. This is because he adds underperforming shares to those good ideas. He has to do this to reduce liquidity risk: a £100m fund can't hold only a half-dozen stocks. But the point is that even the professionals who have lots of time and access to good information only know a few stocks that can beat the market. Most of their time is spent subtracting value from their fund.
The same is true for retail investors. Terrance Odean of the University of California Berkeley has shown that those who trade frequently lose money by doing so.
There's a strong reason for this. Although markets are not perfectly efficient, nor are they egregiously and ubiquitously inefficient. Mispricings - except for some categories I'll come to - aren't that common. And our chances of finding them are further curtailed by the fact that our attention, rationality and knowledge are all limited. You can't follow the hundreds of stocks that are on the market; even those you do follow cannot be wholly known, as VW investors have discovered; and what knowledge of the companies you do have might be misinterpreted.
One especial danger here is that you might trade not on signals but on noise - things that you think are information but which are not. Harvard University's Brock Mendel and Andrei Shleifer have shown that professionals do this. And so do retail investors: just as those who bought tech stocks in 1999 or mining stocks two years ago.
I'd therefore suggest that you take up a hobby other than share trading in your retirement: a musical instrument, or gardening. Even golf.
Given all this, you might expect me to say you are right to be apprehensive about managing a large capital sum. I'm not sure you are. It's simple.
I'd advise that you hold a fund of funds as the main component. By this I mean of course a tracker fund - ideally one that tracks a global index such as MSCI's world index. You can think of a tracker as being a fund of funds: it holds what the average of all fund managers holds. Except that it does so with much lower fees.
If markets are efficient, you will not be able to do better than this, except by luck or by taking on more risk. However, markets are not perfectly efficient. We know that, in the long run and on average, some categories of shares do outperform: value (although this might be due only to their extra riskiness); defensives and momentum. You can supplement your tracker fund with ETFs that invest in momentum and high-yielding stocks if you want exposure to these factors. You don't need to trade regularly to get such exposure.
I'd also advise you to hold some cash simply because this is the best way of reducing risk.
This leaves only the question of how to rebalance the portfolio occasionally. Unless you want to follow the 'sell on May Day, buy on Halloween' rule, I'm not sure you need to. Sometimes, a fall in the market is a buying opportunity, but sometimes it isn't because it presages further falls: the investor who bought UK stocks after their falls in 2001 or 2007 would have lost money, for example. I'm not sure that you need to rebalance much. Just start out with a balanced portfolio whose risks you are happy to bear.
Overall, then, my advice is simple. Do less, and worry less. Enjoy your retirement.
HOW TO IMPROVE THE PORTFOLIO
Lee Robertson, the chief executive officer of Investment Quorum, says:
I suggest that you seek the advice of a reputable financial adviser should you feel the need to do so to review your assets and pension planning as there is quite a bit of change in pensions in general and in the NHS schemes in particular. You will have a pensionable income of £60,000 when you retire in 12 months' time, which carries the enviable index linking available from public sector schemes.
Your cash lump sum of around £300,000 from your pension needs to be professionally managed and have an appropriate asset allocation given that you are self-managing the larger sum.
You both have Isas and we are real advocates for clients maximising their annual allowances each year. Like the cash lump sum, this could be managed through a strategic and tactical asset allocation. Moving any capital from an unwrapped basis to a tax wrapped basis such as an Isa obviously makes a lot of sense.
While you have stocks-and-shares Isas invested through a small number of self-selected funds it might be prudent to review the holding and then formulate the portfolios as below.
You have a high stated tolerance towards risk; however, given your overall status and criteria, we would recommend that you invest through a growth and income strategy, which will give you a total or real return with the aim of growing those assets over the coming years of retirement. This should help mitigate truly corrosive effects of inflation, which even at the current low rates can have a real impact over the medium to longer term.
We would suggest the following asset allocation and fund selection for consideration should the suggested real return strategy meet with favour.
Lee Robertson's suggested growth and income portfolio for Robert
|CF Woodford Equity Income Fund*||7|
|Schroder UK Alpha Income Fund||5|
|Threadneedle UK Equity Fund||5|
|Old Mutual UK Equity Income Fund||5|
|Miton UK Value Opportunities Fund||6|
|CF Lindsell Train UK Equity Fund||7|
|Franklin Templeton UK Focus Fund||5|
|JP Morgan US Equity Fund||5|
|BlackRock Continental European Income Fund||5|
|Lindsell Train Japanese Equity Fund||4|
|Barings Eastern Trust||5|
|Somerset Emerging Markets Dividend Growth Fund||4|
|Artemis Global Income Fund*||8|
|Royal London Sterling Extra Yield Fund||5|
|Invesco Perpetual Monthly Income Plus Fund||5|
|SLI IGNIS UK Property Fund||3|
|Kames Capital Property Income Fund||5|
*Member of the IC Top 100 Funds
This strategy, if managed successfully, will also protect you against any increase in inflation or interest rates over the long term. We would not recommend buying individual shares unless you believe that you can monitor your portfolio on an active basis, which would include continually researching your individual stock picks.
If you and your wife were to consider taking some professional advice, having your assets managed on a risk-adjusted basis, through the appropriate model, then this would allow you to access professional investment and asset allocation advice going forwards, particularly into later life when some of these decisions may become more difficult.
Your wife has a Sipp which you propose to keep topping up as long as possible [to 75] She is a non-earner so can only put the annual allowance in, but we completely agree with this strategy due to the current levels of tax relief and protections available via the personal pension vehicle.
Peter Day, partner at Killik & Co, says:
I would draw your attention to the renowned annual Barclays Equity Gilt study. It highlights the longest period of data that we have for the real returns achieved from equities, gilts and cash. It shows that equities will undoubtedly experience a great deal more volatility than fixed-income assets, but over long periods equities have consistently delivered higher real returns than all other asset classes.
As you have sufficient appetite for risk and no requirement for income from this portfolio, equities should represent a core part of your investment portfolio.
Inflation eats into cash savings and you should therefore avoid holding more than required. As you have a guaranteed monthly income through your index-linked pension, I suggest that you hold 5 per cent of your £300,000 lump sum in cash, in addition to funds required to cover any significant upcoming purchases. The remainder should be invested in the market.
It would be prudent to make full Isa contributions for both you and your wife for the 2016-17 tax year. The Isa allowance will be £15,555 next tax year, enabling you to protect a joint sum of £31,110 from income and capital gains taxes. It also makes sense to continue contributing to your wife's Sipp until there is a requirement to begin drawing down.
I believe that you are adopting an appropriate strategy by investing fully into mutual funds and ETFs rather than direct equities. Funds will help you achieve your long-term growth goals through a diversified basket of stocks, while protecting you from the specific risks involved in single-stock investing. In your retirement, should you wish to be 'dabbling' in the market on a more frequent basis, I would recommend allocating a small part of your portfolio to this type of investing.
Your existing portfolio is underweight US equities. The US is outperforming the rest of the world in terms of economic recovery and an allocation of 20-30 per cent will help you grow your capital. You can gain exposure through the SPDR S&P US Dividend Aristocrats ETF (USDV)*, which invests in the highest dividend-yielding S&P Composite 1500 Index constituents that have followed a managed-dividend policy of consistently increasing dividends every year for at least 20 consecutive years.
If you are willing to take on a slightly higher level of risk, I would also encourage you to invest about 5 per cent of your portfolio in Japanese equities. I believe Shinzo Abe's "three arrows" of economic policy and the continued depreciation of the Yen will push the Japanese equity market further yet. The CF Morant Wright Japan Fund (GB0033010124) is our favoured way to invest in the sector. The investment team has a wealth of experience and the fund's long-term performance has been consistently strong.
*Member of the IC's Top 50 ETFs.