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Maximising growth on £2.5m portfolio at age 55

Rod's substantial portfolio needs rationalisation and tax planning in the run up to retirement

Rod Church is 55 and has a £2.5m portfolio spread across 100 assets. He wants to maximise capital growth over the next six to 10 years in the run-up to his retirement, with the aim of generating £125,000 annual income.

He says: "I am active in investing in private companies and do look to balance and diversify in other areas. I also have a fairly large exposure to property via some private development projects. I am assuming that I will liquidate property to the value of around E1m in the period up to retirement. I do not have much in the way of income so tend to draw down from capital for living expenses. I do not have ambitions to leave much behind."

He owns property abroad as well as in the UK and describes his attitude to risk as "balanced".

Reader Portfolio
Rod Church 55

Shares, funds and investment property


£125k annual income



Trading account
Amerisur Resources (AMER)£4,5620
Baillie Gifford High Yield Bond (GB00B1W0GF10)£6,5030
Biotech Growth Trust (BIOG)£14,4541
Enterprise Inns 6.50% Sec Bonds 2018 (47VU)£12,8251
ETFS Daily Short Gold (SBUL)£25,0001
ETFS Short EUR Long USD (SEUP)£11,1860
HSBC FTSE 100 Index (GB00B80QFR50)£12,7681
iShares MSCI Japan USD (IJPD)£14,6001
iShares Core £ Corporate Bond UCITS ETF (SLXX)£12,4180
JPMorgan Japanese Investment Trust (JFJ)£11,9440
MFM Junior Gold (GB00BH57BR88)£1,5950
Murray Income Trust (MUT)£8,9420
Polar Capital Technology Trust (PCT)£10,6750
Public Service Properties Investments (PSPI)£6050
Schroder Japan Growth Fund (SJG)£13,9851
Velocys (VLS)£1,6000
Aberdeen Emerging Markets Equity A Acc (GB0033228197)£12,2110
Invesco Perpetual High Income Z Acc (GB00B8N46L71)£28,4761
First State Asia Pacific Leaders B (GB0033874768)£16,9421
Marlborough Special Situations P Acc (GB00B907GH23)£31,3371.5
JOHCM UK Equity Income (GB00B8FCHK57)£19,4671
M&G Optimal Income I Acc (GB00B1H05718)£21,7471
BlackRock Global Property Securities Equity Tracker D Acc (GB00B5BFJG71)£14,5171
ETFS Physical Gold (PHGP)£12,9601
Liontrust Special Situations I Inc (GB00B57H4F11)£20,7161
Ruffer Investment (RICA)£14,6001
Newton Real Return W (GB00B8GG4B61)£5,7610
Jupiter European I Inc (GB00B4NVSH01)£20,7321
Schroder US Mid Cap Z Acc (GB00B7LDLV43)£14,0561
ETFS GBP Daily Hedged Forward Agriculture DJ-UBS PD-F3SM ETC (PFAG)£10,6490
ETFS GBP Daily Hedged Physical Gold ETC (GBSP)£15,3751
Herald Investment Trust (HRI)£10,7080
Hermes International (0HV2)£6620
iShares MSCI Japan (SJPA)£16,6451
Eli Lilly (0Q1G)£9,5400
LVMH Moët Hennessy Louis Vuitton (0HAU)  £9,2000
PowerShares Global Water (PSHO)£7,1450
Taylor Wimpey (TW.)£36,4801.5
Holdings in offshore bond
Aviva Property Trust Inc (GB00B7RBQM86)£14,8521
AXA Framlington UK Select Opportunities ZI Acc (GB00B7FD4C20)£26,2151
Baillie Gifford Japanese B Acc (GB0006011133)£11,3800
BlackRock Global Property Securities Tracker D Acc (GB00B5BFJG71)£19,1891
Fidelity Strategic Bond Y Acc (GB00BCRWZS59) £20,5361
First State Global Listed Infrastructure B Acc (GB00B24HJL45)£17,3701
First State Global Resources B Acc (GB0033737767)£13,5641
HSBC European Index C Acc (GB00B80QGH28)£15,7431
IShares S&P SmallCap 600 UCITS ETF (ISP6)£10,6970
JPM Emerging Markets Income C Acc (GB00B5M5KY18)£23,0541
Jupiter Strategic Bond I Acc (GB00B4T6SD53)£20,4441
L&G UK Property Feeder I Acc (GB00BK35F408)£10,9780
M&G Global Dividend I Acc (GB00B39R2Q25)£26,8491
Marlborough Special Situations P Acc (GB00B907GH23)£24,0751
Newton Real Return W Acc (GB00B8GG4B61)£20,4921
Ruffer Total Return International C GBP Acc (LU0638557586)£12,4070
Threadneedle UK Equity Alpha Income Z Inc (GB00B88P6D76)£20,4801
Vanguard Emerging Markets Stock Index Acc (IE00B50MZ724)£14,0721
Vanguard FTSE Developed World ex UK Equity Index Acc (GB00BPN5NY15)£22,1001
Vanguard FTSE UK All Share Index Acc (GB00B3X7QG63)£44,4002
CF Woodford Equity Income C Acc (GB00BLRZQ737)£23,9581
Australian equities
SPDR ASX 200 ETF£7,1110
National Australia Bank£8,5220
OZ Minerals£1,5470
Syndicated Metals£1880
Isa holdings
BlackRock World Mining Trust (BRWM)£4,5310
BP (BP.)£5,0100
British American Tobacco (BATS)£18,7621
Cineworld (CINE)£20,4181
City Natural Resources High Yield (CYN)£1,4850
ETFS Gold Bullion Securities ETC (GBSS)£4,1780
Henderson Smaller Companies IT (HSL)£14,8281
HSBC Japan Index (GB00B80QGN87)£11,8030
iShares Emerging Market Infrastructure UCITS ETF (IEMI)£4,6820
Lyxor ETF Brazil (RIOL)£2,1380
LYXOR ETF MSCI Emerging Markets (LEML)£5,1850
Lyxor UCITS FTSE 100 (L100)£14,0171
National Grid (NG.)£19,5361
Real Estate Investors (RLE)£6,3860
Royal Dutch Shell B (RDSB)£5,1750
SSE (SSE)£8,7980
Utilico Emerging Markets (UEM)£8,6110
Fidelity UK Strategic Bond Y Acc£4,8680
JPMorgan Brazil (JPB)£3,0620
Legal and General UK Property I Acc (GB00BK35DV33)£14,1951
Utilico Emerging Markets (UEM)£5,5320
Other assets
NSI Inflation Linked Savings Certificate£16,0001
EIS Investments £85,0003
BBR Wine Portfolio£10,0000
Investment property
UK Development£130,0005
Spain Development£800,00032
Buy-to-let property£250,00010
Cash on deposit £90,0004
Total portfolio value£2,517,459100

Source: Investors Chronicle



Chris Dillow, Investors Chronicle's economist, says:

This portfolio provides a nice example of how we should use our financial assets to mitigate the risks generated by our other assets.

Your investments in property and private equity mean you are taking on three risks. One is liquidity risk: such assets are difficult to sell quickly at a good price, especially in bad times. Another is cyclical risk: a recession would devalue both property and many businesses. A third is exchange rate risk: if the euro were to fall, your Spanish property would fall in sterling terms.

You should arrange your financial assets with these risks in mind.

This raises a problem. The risks posed by your background assets increase equity risk. Many of the circumstances in which shares would fall seriously would be ones in which your background risks would intensify. Liquidity might dry up, making it difficult to sell that Spanish property at a good price. And the same worsening economic outlook that would depress shares could also depress property prices and the value of unquoted companies.

Ordinarily, such heightened risk would justify your financial assets having a higher-than-average weighting in cash and bonds, as these protect us from cyclical and liquidity risk.

However, you say you want to maximise capital growth. Cash and bonds, obviously, do not do this. Quite the opposite: we must now pay a high price in terms of foregone returns if we want safer assets.



Chris Dillow says:

The fact that your portfolio is so diversified, including holdings in bonds and gold, suggests you are concerned to spread risk rather than maximise growth. This poses the question: how can you achieve growth, without adding greatly to your background risks? Here are four possibilities:

■ Have a bias towards bigger stocks. These are less vulnerable to liquidity risk than smaller ones. And, given their relative underperformance in recent years, they might even be relatively cheap, too.

■ Hold defensive stocks. In the worst-case scenario, these would at least fall less than the general market in the event that cyclical and liquidity risks materialise. In more normal times, these should outperform the market simply because they usually do. Herein lies some good news. Some of your fund holdings do give you this exposure: Murray Income and CF Woodford's equity income funds have big holdings in large defensive stocks.

■ Be wary of income and special situations funds. Yes, some of these give you the defensive exposure you need. But others add to cyclical risk: the phrase 'income stocks' in fact covers two different asset classes - defensives and cyclicals. For someone already taking on cyclical risk, even more of it might not be wise.

■ Have some exposure to dollar assets. I don't normally advise retail investors to take a view on currencies. But your Spanish property means you have big exposure to the euro: the currency's volatility since 2000 implies that there's around a one-in-six chance of you losing 20 per cent or more over the next six years. One way to mitigate this risk is to hold some dollars, as these might well rise if the euro does fall. This does not, however, necessarily mean holding US stocks. There are circumstances in which these would not rise one-for-one with a rise in the dollar against the euro.

In a sprawling portfolio such as this, trading and fund management charges can add up nastily over the years. Try to simplify your portfolio, and trade less.


Ben Willis, head of research at Whitechurch Securities Wealth Managers, says:

Your investment portfolio lacks strategy and direction, and is in need of a review and spring clean. With 100 different positions, you are overdiversified and need to rationalise your holdings. It must be difficult to keep track of each on an ongoing basis. However, some positions within the individual savings account (Isas), and in the trading account in particular, are around 2 per cent in size - some are less than 1 per cent - and you have to ask yourself, how much are these contributing to overall returns?

Given the number of higher-risk investments that you hold and the areas on your watchlist, I would question whether your attitude to risk is balanced. Balanced investors will generally hold positions across several asset classes, and while equities, fixed-interest, property, gold and commodities are held within your investment portfolio, you have a clear propensity for higher-risk equity investment. If you are seeking a balanced investment portfolio, your offshore bond provides a good starting place in terms of asset allocation, with roughly 70 per cent in UK and overseas equities and the remainder in a diversified, balanced allocation towards fixed-interest, property and multi-asset.

I suggest first deciding how much risk you really want to take with your investments. I would then look to jettison the marginal positions mentioned. Any proceeds should then be used to bolster existing positions you wish to keep or to fund meaningful positions within new ideas.



Markus Stadlmann, chief investment officer of Lloyds Bank Private Banking, says:

You should look at the tax planning opportunities before delving into suitable investment solutions. The wider implications of income tax and capital gains tax (CGT) should drive the structure of your portfolio and the underlying investment wrappers ahead of the underlying investment asset components.

From April 2016 UK basic-rate taxpayers are able to receive £1,000 in savings interest-tax-free. By reducing investment income to below the higher-rate threshold of £42,700 this would open up an opportunity to take advantage of this new facility. Taxable income could also be reduced by using tax-efficient options such as Isa investments each year and by using bond-based investments where up to 5 per cent of the original investment can be withdrawn with a deferral of any potential higher-rate tax for up to 20 years.

If you put roughly half of the existing portfolio in bond-wrapped investments (and took a 5 per cent withdrawal) you could reduce other income to below the higher-rate threshold (assuming cash deposit interest on the cash of £700,000 is 1.5 per cent gross). This could restore entitlement to the new tax-free savings interest that would otherwise be lost.

A knock-on effect of reducing taxable income below £100,000 would be to restore your entitlement to a full personal tax allowance, which is normally restricted over £100,000.

Consider making stakeholder pension contributions of £3,600 gross per year. Over 10 years this would provide a tax-efficient fund of £36,000, plus growth, while attracting tax relief on annual contributions at the highest paid rate of tax. The pension fund would grow tax-efficiently and you would have full drawdown flexibility when required in the future under the government's latest rules on pension freedom options.

You could also take advantage of the annual CGT exemptions (currently £11,100 per person). By uplifting the base cost (increasing the purchase cost) of the funds portfolio by trading it you can ensure withdrawals of capital can be made as required in the future in a tax-efficient way using any available capital gains exemptions available in the future.

If you are married then it could make sense to take advantage of any tax advantages available to your spouse as well.


*None of the above should be regarded as advice. It is general information based on a snapshot of the reader's circumstances.


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