'How do I double my portfolio in eight years?'

Picking the right strategy can be tricky for investors, especially when they start with no specific purpose in mind. It’s easy to end up with a portfolio that does not match one’s risk appetite or goals.

This happened to Graham, a 62-year-old project manager. He currently earns £62,000 a year from his full-time job, from which he is hoping to retire in three years’ time – although he could be made redundant before then. He is married, but he and his wife prefer keeping their finances separate. 

He has about £56,000 invested in an individual savings account (Isa), to which he is currently contributing about £200 a month. “I started investing just over two years ago without a specific goal in mind other than to grow the portfolio. But now I would like to have amassed £100,000 by the age of 70, but I am not sure how much money I will have to invest to get there,” he says.

Graham will receive a defined benefit pension worth between £20,000 and £27,000 depending on whether he is made redundant, on top of the full state pension when he turns 67. Until then, he plans to supplement his income with part-time work. He has amassed £70,000 in additional pension contributions. 

His income position is quite solid and for now, Graham does not need to draw from his Isa. “I plan to leave my investments untouched for at least five years. Hopefully, I will be able to do so until I am 70,” he says. But this is not set in stone. “I have two children in their late 20s. They might get married over the next five years, and I would like to help them get onto the property ladder if they do.”

He is on the right track to reach his goal. He will have an additional £6,000 lump sum to invest in the first half of 2024, and plans to increase his contributions to £400 a month from June 2024. If he keeps that up until he is due to retire at the end of 2026 and his investments return 5 per cent a year after fees, his pot should be worth around £110,000 by 2031.

But Graham needs the right strategy to make sure this materialises. His investments are heavily skewed towards four UK stocks, chosen because of their dividend record, with 35 per cent of his portfolio in Aviva (AV.). He also has a few funds, recently added to diversify via exposure to China and the US, which he plans to add money to. “Despite the woes in China, even today, I believe there is a profit to be made there,” he says.

Graham wants to know whether his strategy is sufficiently diversified. In the past, he has been less than patient with his investments. “I chopped and changed too many stocks and lost money," he says. "This year I have decided to stick with the funds I have now through thick and thin. I would also like to invest further in my four stocks if the prices fell below my averages.”

But Graham is quite risk averse and would like to avoid losses above the 5-6 per cent mark. As he approaches retirement, he believes his investments must be low risk. This seems at odds with his concentrated strategy, so in order to create a portfolio that matches his goals and risk appetite, he may have to revisit his decision to stick with the current holdings.

Graham also expects to inherit around £150,000 within the next 10 years and does not have any rent or mortgage to pay.

NONE OF THE COMMENTARY BELOW SHOULD BE REGARDED AS ADVICE. IT IS GENERAL INFORMATION BASED ON A SNAPSHOT OF THESE INVESTORS' CIRCUMSTANCES

Preeti Rathi, senior investment director at Investec Wealth, says:

You are quite risk averse and are cognisant that as you approach retirement your investments should be lower risk. Stocks offer the best long-term returns, but not owning any other assets is unwise. Stock markets can have severe downturns and the expected annual volatility for the UK market is around 16 per cent.

With your low tolerance for volatility, you should have at least 50-60 per cent of your portfolio in bonds. There are some incredibly attractive opportunities within bonds, so you may well be pleasantly surprised. Generally speaking, the riskier the bond, the more income it pays.

The Jupiter Strategic Bond Fund (GB00B4T6SD53) invests in the most attractive parts of the bond market. At the moment, approximately half the portfolio is in high-yield bonds. As the market environment changes, the manager will move between different types of bonds, so you can hold the fund without worrying about which bonds are right for the moment. It buys globally but hedges all the currencies back to sterling.

Given you are hoping not to touch your Isa for five years, you should keep around 30 per cent in stocks. Your portfolio size is best suited to funds rather than individual companies and I would sell the single company holdings immediately. If you insist on keeping them, only put a maximum of 5 per cent of a portfolio’s value into one single company.

You could construct your stocks portfolio in many ways, but a fund I like is the Blackrock European Dynamic (GB00BCZRNN30). It focuses on continental European stocks and excludes the UK. It is high conviction and is run by a passionate management team with a focus on high-quality companies that should compound decent returns over the longer term.

You could then have the rest of the portfolio in alternative holdings such as absolute return funds, gold or real estate. I would start by holding a simple gold exchange traded fund (ETF). I wouldn’t normally encourage the use of tracker funds but with gold, simplicity is key. It is the classic ‘flight to safety’ asset so it provides a cushion when markets are nervous.

You mention a potential £150,000 inheritance and would like to help your two children with property purchases. I wouldn’t depend on the inheritance, but it could be used for this purpose if it did come through. Without a mortgage or rent to worry about, you are in a great position to continue saving and investing. I would encourage you to embrace the opportunities within bond markets and position yourself in a more diversified way as you continue to add to the portfolio.

Lily Ball, associate client adviser at Netwealth, says:

According to the Pensions and Lifetime Savings Association (PLSA), you need an income of £37,300 per year to retire comfortably. A good part of this will be covered by your defined benefit pension and the state pension which is currently worth £10,600.20 a year.

Nevertheless, while you are still working, part time or full time, you should make pension and Isa contributions where possible. Building up your pots will help ensure you can meet your income needs in retirement, particularly if you are made redundant and your defined benefit pension is set at the lower end of the range.

Your investment time horizon of five years means you can take a moderate degree of risk and ride out any interim market volatility. But your willingness to take risks is important, too. Since you are not psychologically comfortable with losses of more than 5-6 per cent, you may wish to reconsider what you are invested in.

Your current portfolio would be typically more appropriate for ambitious investors, focused on achieving higher returns over the long term and willing to withstand periods of significant negative performance in the interim. Consider diversifying away from stocks, especially from your single stock positions. Single-company holdings expose you to a lot of risk, because you are subject to the management and performance of that specific business.

For your investment time horizon, you should consider a balanced portfolio, more globally diversified and with some exposure to defensive asset classes such as bonds, in order to reduce the level of volatility. Our balanced portfolios are currently positioned around 45 per cent in equities, 43 per cent in fixed income, 8 per cent in alternatives and 4 per cent in cash. The equity portion is diversified geographically across the UK, US, Europe, Asia and emerging markets, the fixed income exposure includes corporate, government and high-yield bond positions, and the alternatives exposure includes gold and broad commodities.