Cut UK exposure if you want to meet your goal

"At that time I reasoned that if shares can go down that quickly they could go up equally quickly, so I decided to commit to investing for the long term. Shortly after that I had a tenbagger with lastminute.com and have stuck with investing ever since through the highs and lows.

"I don't get overly fazed by big market swings, but no one likes to watch markets move down. Like many investors I was caught out in 2000 and 2008 when I lost 35 per cent of my total portfolio's value, but I believe in the long game and, overall, the value of my portfolio does generally move up each year: it moved up 11 per cent in 2014 and 16 per cent in 2015.

"Over recent years I have learned not to have high expectations and have targeted growth with my portfolio to build up a pot that can be converted into steady income within the next 10 years. This will be either to supplement my pension by £5,000- £10,000 a year in a decade's time or, if possible, fund a less regimented work/life balance sooner.

"My knowledge of investing is through experience and I read Investors Chronicle every week. I have enough time to track a fairly large portfolio, but change it gradually only when there is good reason to do so.

"I am thinking about reducing the number of individual company shares and starting to move into growth and income funds. I would do this at a slow rate, cutting three companies a year, starting with underperformers such as Marks and Spencer (MKS), GKN (GKN) and Barclays (BARC).

"I am thinking of replacing underperforming shares in the portfolio with LondonMetric Property (LMP), Antofagasta (ANTO) and Rentokil Initial (RTO). And I plan to buy the following funds with this year's Isa allowance:

Jupiter Strategic Bond (GB00B4T6SD53)

Liontrust Special Situations (GB00B57H4F11)

Royal London Ethical Bond (GB00B7MT2J68)

"My last three trades were buying £4,500-worth of Fundsmith Equity Fund (GB00B4MR8G82) and shares worth £4,154 in Regus (RGU), and the sale of a holding in GAM North American Growth Fund (GB00B6TTG122) worth £4,083.

"I am in full-time employment at BAE Systems (BA.) and that company is my largest single holding via the company share scheme. I and my partner own our home and we don't have a mortgage or other debts. We have solid cash savings that could replace my income for about four years, and we do not have any children.

"My monthly company share scheme provides a solid core to the portfolio, which is held within an individual savings account (Isa). All dividends are automatically reinvested."

Melvin's portfolio

THE BIG PICTURE

Chris Dillow, Investors Chronicle's economist, says:

Although this portfolio looks well-diversified - some might say too much - so it carries some risks.

The obvious one, of course, is the disproportionate holding in BAE Systems. Investing in the company you work for is often a bad idea: it is putting your eggs into the same basket. But I'll overlook this on the assumption that your share purchases have been generously subsidised.

You also have a lot of exposure to downside risk. Construction and property companies could do especially badly in a financial crisis - a risk that is exacerbated by the fact that you also have some high-beta stocks such as Inchcape (INCH), Barclays and Howden Joinery (HWDN). The counterpart to this is that you seem relatively underweight in defensives: only your telecoms stocks fit this description. This is despite the fact that these tend to outperform over the long run.

I suspect there's a reason for this bias against defensives. You say you have "targeted growth". This, though, runs into a problem. Just because you think a stock offers growth doesn't mean it actually does. In fact, growth stocks have tended to underperform in the past 20 years. For example, the FTSE 350 Low Yield Index, a decent gauge of growth stocks, has underperformed the High Yield index by 2.6 percentage points per year. This is because investors tend to pay too much for exciting growth potential, and under-rate the importance of barriers to entry - what Warren Buffett calls moats - as a means of achieving profit growth. Such moats are often owned by defensive stocks, hence their outperformance.

Perhaps, though, you are happy with this bias. Due to the vote to leave the European Union (EU), the risk of a crisis might now be better priced into your portfolio. If we avoid disaster and the market recovers, your portfolio should do well.

Jason Hollands, managing director of Tilney Bestinvest, says:

Although you have a fairly long-term investment horizon with retirement a decade away, this portfolio is very high risk as it is almost entirely exposed to direct equities or equity funds. The spread across markets is also poorly diversified, with a heavy concentration on the UK market. Much of your overseas exposure, particularly with regards to the US, is narrowly focused on healthcare stocks, including biotech companies. The portfolio has a huge exposure to one stock - BAE Systems - as a result of your employment.

I fear this portfolio will have taken a fairly brutal beating both in the run-up to and in the aftermath of the UK's vote to leave the EU, given its exposure to domestically focused cyclical stocks. These include construction companies Costain (COST), Galliford Try (GFRD) and Taylor Wimpey (TW.); property stocks Great Portland Estates (GPOR) and LondonMetric Property and car dealers Inchcape, Pendragon (PDG) and Vertu Motors (VTU). At a time of slowing global growth, these are not the types of stocks I would want to be heavily exposed to, especially with the potential economic fallout from Brexit weighing on sentiment.

Tim Stubbs, investment manager at Fiducia Wealth Management, says:

Your portfolio is highly geared to the fortunes of the UK economy. More than 80 per cent of it is invested in UK shares, more than half of which are particularly sensitive to domestic economic growth. You have significant exposure to industrials, banks, retailers, construction, housebuilders and real estate.

Unfortunately, many of these companies will have faced significant selling pressure due to the vote for Brexit. Your realisation that market slumps come and go is a positive, suggesting you are not inclined to panic selling. You do, however, face a decision on whether to retain such positioning over the short to medium-term.

Your plan to gradually de-risk your portfolio over the next 10 years, at least in terms of shifting from stocks to funds, consistent with your retirement plans, sounds sensible. It is generally advisable to reduce, or preferably eliminate, stock-specific outcomes disrupting your retirement. But I would diversify at a faster pace than you have outlined.

HOW TO IMPROVE THE PORTFOLIO

Chris Dillow says:

Your intention to sell underperforming stocks is generally a good idea. Because there is momentum in share prices, cutting losers is - on average - a way to avoid further losses.

There are two dangers in doing this, though. If you cut too quickly you risk trading on mere noise rather than signal, and incurring unnecessary dealing costs. But if you wait too long you might find your stock has overreacted on the downside so that selling it might see you miss out on a bounce.

I would sell every stock that has fallen significantly over, say, three months. This allows you to cut negative momentum stocks without trading on noise. I would enforce this rule vigorously. If you try to rely on judgment, you might well end up regretting any errors you make. Using a rule that pays off on average helps you minimise regret.

And there's a danger in your intention to shift to funds. If you have a diversified portfolio already, general growth and equity income funds might add little in terms of return or risk-spreading, but could incur higher fees.

The obvious way to mitigate this problem is to shift into low-cost trackers. If you must use actively managed funds and want to reduce risk, look for one of the several income funds that has a big weighting to defensives.

Jason Hollands says:

There are some decent funds within the portfolio: Fundsmith Equity, managed by Terry Smith, has been a standout performer. Its exposure to dollar earnings and businesses, with strong brands and good free cash flow generation, mean it should prove resilient in these uncertain times.

Jupiter European Opportunities Trust (JEO) and Legg Mason IF Japan Equity Fund (GB00B8JYLC77) are also leaders in their respective markets, with the latter having just enjoyed an astronomical year. At the less impressive end of the spectrum is Fidelity Global Special Situations (GB00B8HT7153), while Aberdeen Asia Pacific and Japan Equity (GB00B0XWNK36) has underperformed for three years on the trot and by more than 10 per cent over this period.

In terms of housekeeping, there are a lot of holdings in this portfolio and you should consider trimming this down to a more manageable size, for example 20 positions focused on well managed funds.

You should certainly consider adding some asset class diversification, perhaps by allocating 10 per cent of the portfolio to absolute-return funds, such as JPM Global Macro Opportunities (GB00B4WKYF80) or Invesco Perpetual Global Targeted Returns (GB00BJ04HL49).

Also consider selling and reinvesting some of the individual stock positions into well-managed funds such as Liontrust Special Situations and Evenlode Income (GB00B40Y5R17), and adding to Fundsmith Equity.

Tim Stubbs says:

Just under a fifth of your portfolio is invested in diversified funds, most of which are focused on non-UK equities.

But you also have just under £45,000 invested in BAE shares, which you have received through your employment share scheme. Be careful with this: if any unforeseen developments were to harm BAE you could potentially lose your job and a large chunk of your savings, putting you at risk of an inferior retirement income in a worst-case scenario. To reduce concentration risk consider selling off chunks of your BAE holding as soon as you are able to do this on attractive terms, and diversify the proceeds into other investments.

I would suggest you have a far more globally diversified spread of investments than you currently have. Given your investment time horizon, areas to consider adding include convertible bonds, infrastructure and emerging markets funds and investment trusts, which are at the lower and higher end of the risk spectrum, respectively.

In light of recent market falls, many investment trusts' discounts to net asset value (NAV) have widened. Look for globally diversified trusts.

Turning to the UK stock market, I would not be surprised to see FTSE 100 large-caps do relatively well for the remainder of the year, given the likely rotation out of mid-caps, which have been a very popular area with investors in recent years.