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How should I invest for growth over 30 years?

This investor wants to build up enough assets to retire in his early sixties
How should I invest for growth over 30 years?

This investor's very long term investment horizon means he needs to monitor and manage changes in equity markets

He should consider adding more exposure to overseas equities

Reader Portfolio
Adam 31

Pensions, Isa and trading account invested in direct equity holdings and funds, workplace SAYE scheme, cash, residential property.


Minimise income tax, retire in early 60s or sooner on £28,000 per year, pay off mortgage in next 25 years, invest more of cash holdings.

Portfolio type
Investing for goals

Adam is age 31 and earns £48,000 per year. He and his partner own a home worth about £340,000 with a mortgage of £270,000. He also owes student debt of £23,000.

“I am employed on a pay-as-you-earn basis and would like to minimise taxation on my income,” says Adam. “I have been doing this by contributing a large amount to my pension as I’d also like to retire in my early 60s or sooner on about £28,000 per year. 

"I contribute 12 per cent of my salary and my employer contributes 10 per cent to a defined contribution pension.

"One third of my other investments are in a self invested personal pension (Sipp), one third are in a general investment account and the remainder are in an individual savings account (Isa). I plan to continue transferring assets worth the full annual allowance into my Isa each year so that all my investments are held either in that or a Sipp.

"We plan to overpay our mortgage and hope to pay it off within 25 years. That said, the interest rate on the mortgage is lower than the rates I get on most of my cash accounts. And my investments' value has been rising at substantially higher rates for the past 13 years – excluding cash injections – so I don't want to make vast over payments. But if mortgage rates rise very substantially I may.

"I started investing in the stock market at age 18 in the first year of a finance degree at university. I have a high risk appetite and long investment horizon, as the earliest at which I expect to take income from my investments is age 60, giving me a time horizon of 29 years or longer. I’m also in a stable, permanent job and don't spend all of my salary. So I think I could experience substantial investment losses and still meet my investment goals.

"That said, I have tried to offset higher risk investments in Royal Dutch Shell (RDSB) and Lloyds Banking (LLOY) with Supermarket Income REIT (SUPR) and Greencoat UK Wind (UKW).

"I tend to invest when I see opportunities in well established companies with a strong investment case such as Visa (US:V) or Mastercard (US:MA). Or when an unexpected drop has brought a security's share price substantially below its net asset value as I did,  for example, with Empiric Student Property (ESP) and British Land (BLND).

“When I am less confident I invest less, hence a larger investment in Royal Dutch Shell and smaller ones in British Land and B&M European Value Retail (BME). But I am thinking of reducing Royal Dutch Shell as [at time of writing] its share price has risen significantly and it seems like too great a proportion of my investments to have in just one company.

"My biggest lesson has been realising that the more research you do when making an investment decision the better – no amount of research is too much.

“My worst investment to date has been Superdry (SDRY), which I sold at a loss. More recently, I have sold LondonMetric Property (LMP) and DS Smith (SMDS).

"I have a large allocation to cash and am tempted to put more of this in equities within one of my pensions. I am considering lower risk equities and Fundsmith Emerging Equities Trust (FEET).

"I think that I should retain some cash as such a large proportion of my investments are equities. But I find it difficult to work out how much cash I should retain."


Adam's portfolio
HoldingValue (£)% of the portfolio
Fundsmith Equity (GB00B4Q5X527)23,8487.31
Lloyds Banking (LLOY)18,2145.59
Royal Dutch Shell (RDSB)16,1604.96
Supermarket Income REIT (SUPR)16,1254.94
LXi REIT (LXI)11,7953.62
Urban Logistics REIT (SHED)8,6232.64
Greencoat UK Wind (UKW)7,7642.38
Regional REIT (RGL)7,2482.22
Serco (SRP)7,1492.19
Domino's Pizza (DOM)6,4171.97
Workplace pension5,5501.7
AEW UK Reit (AEWU)5,4461.67
British American Tobacco (BATS)5,0411.55
B&M European Value Retail (BME)4,9661.52 (US:AMZN)4,5701.4
National Grid (NG.)4,5701.4
Empiric Student Property (ESP)4,2871.31
Mastercard (US:MA)4,2831.31
ASML (NET:ASML)3,8751.19
Visa (US:V)3,8581.18
Diageo (DGE)3,6581.12
British Land (BLND)3,3381.02
HSBC FTSE-All Share Index (GB00B80QFX11)2,8120.86
Gilead Sciences (US:GILD)2,2840.7
HSBC FTSE 250 Index (GB00BV8VN686)2,1010.64
Taylor Wimpey (TW.)1,9450.6
BP (BP.)1,1520.35
Workplace SAYE scheme1,0000.31




Chris Dillow, Investors' Chronicle's economist, says:

There’s a lot you are doing right and by having started to invest early you should benefit from the power of compound returns.

It’s important to use tax shelters as much as possible, though you don’t want your pensions to breach the lifetime allowance. You are some way from this just now, but as your wealth should increase and the pensions lifetime allowance may fall this could become an issue. So invest in Isas alongside your pension.

It’s wise to pay down your mortgage. Although the interest rate is low at the moment there’s a risk that mortgage rates will rise significantly and there could be some years when they are greater than returns on equities. But reducing your mortgage cuts this risk.

The big issue with this portfolio is the long investment horizon. Over the next 30 years, it’s likely that some of the largest and best-known companies will decline or collapse. For example, in 1991, the FTSE 100 index included stocks such as BICC, Maxwell Communications, MFI and Woolworths which are all are long gone. Such disappearances are part of what makes for a healthy economy – economic growth depends on competition. And competition has losers – Austrian economist Joseph Schumpeter called it 'creative destruction' for a reason.

So long-term investors need a strategy to cope with this threat. One option is not to be a long-term investor. If you regularly rebalance your portfolio, your time horizon is only as long as the period until the next rebalancing which might only be a few days. Another strategy is to hold tracker funds which back the field rather than particular horses. These have the extra merit of being, in part, momentum funds – they naturally run winners and cut losers.

But you have adopted another strategy. Your portfolio is full of stocks with what veteran US investor Warren Buffett called “economic moats” – sources of monopoly power that protect companies from creative destruction. These include strong brands, such as Diageo (DGE) and British American Tobacco (BATS) have, or the need for high capital requirements which the oil majors and banks can meet. If you must pick stocks for the long-run, this is the best approach.

But investors have wised up to the merits of monopoly stocks such as these so many of them have enjoyed great runs in recent years. Their under pricing is now smaller so their future returns should be lower.

Also, in the very long run the pattern of creative destruction is unpredictable. It could affect at least some of your stocks. So you must have an exit strategy, such as selling assets when prices fall below their 200-day average. This isn’t infallible, but protects portfolios against long bear markets and protracted decline.

Another thing a long-term investors need is overseas exposure. It’s very possible that over the long-run the UK economy will underperform others. This is a problem for youngsters like you if your labour income is tied to the fate of the domestic economy. So to avoid putting too many eggs into the UK basket hold funds which track overseas equities. In the short-run, UK stocks rise and fall as the world market does, but long-run returns can be very different.


Rachel Winter, associate investment director at Killik & Co, says:

It doesn't make sense to overpay your mortgage while rates are so low but you could benefit from overpaying your student loan. Whether this is the case depends on various factors, including the interest rate that you are being charged and the probability of ever paying off the loan in full. Martin Lewis has published some helpful articles on this topic.

You are right to consider investing more of your cash in the stock market. While you are receiving relatively attractive interest rates of up to 1.9 per cent on your cash, this is still below the current rate of inflation so your cash savings are losing value in real terms. But multi-decade studies have shown that equity markets have historically earned at least 5 per cent more than inflation.

A good rule of thumb is to hold six months’ worth of expenditure in cash as an emergency fund. Additionally, set aside cash for any planned large expenditures that you expect to take place within the next three to five years, for example, a house extension, wedding or new car.  Any remaining cash above this can be treated as lifetime savings so could be invested.

It's great that you are allocating as much of your portfolio as possible to tax-efficient wrappers such as Isas and pensions. However, I would question whether you are taking enough risk with your investments. Traditionally, the risk of a portfolio is determined by the proportion of non-equity investments it contains. The higher the non-equity proportion, the more cautious the portfolio is deemed to be. About one third of your investments are in non-equity assets but as you have almost 30 years until you plan to retire, you could have a higher equity weighting.

Also, with the exception of Greencoat UK Wind (UKW), your non-equity holdings are all real estate investment trusts (Reits). You could consider other areas such as infrastructure, gold and music royalties.

Your portfolio has a strong UK bias, which is common as it is can be easier to carry out research on domestic companies. But you have recently added more international investments such as Visa, Mastercard and (US:AMZN) – something that I suggest you continue doing.

Your exposure to oils and financials companies is very high, but your technology exposure is low despite recent additions. And some attractive sectors such as healthcare and mining are missing. While you could add further individual shares to increase your level of diversification, like you say, no amount of research is enough and you may have enough shares to monitor as it is. So you could instead add some global funds. Adding to Fundsmith Equity (GB00B4Q5X527) could work well or you could add Smithson Investment Trust (SSON) which uses the same approach but focuses on slightly smaller companies.

Although FundSmith Equity and Smithson have performed fantastically well there are alternatives to Fundsmith Emerging Equities Trust which have better track records. Options include Stewart Investors Asia Pacific Leaders Sustainability Fund (GB0033874768).