Get a better understanding of your financial position

These two properties are regularly remortgaged on 30-year terms and Charlotte hopes to continue doing this for the next 10 years. At that point she wants to sell them and buy a long-term family home.

“I do not have a spouse or children, but if I do in a couple of years – as I hope – then I would like to be able to cover childcare costs and school fees. I am in denial about the costs of a wedding which we will have to self-fund, but hopefully this will not have too much of an impact on our finances.

“I started investing nine years ago with the aim of using my full annual individual savings account (Isa) allowance to beat the 3 per cent return I was getting on the cash in my bank account. As interest rates have since halved, that target has become more achievable, so my investment goal is now capital growth. I also want to ensure that my portfolio can weather market storms and benefit from compounding over the long term – I hope to avoid dipping into my investment portfolio until life-changing events make it necessary.

"I have cash worth £10,000 in instant access savings accounts. I also bought some modern artworks for £30,000 which have been forecast to eventually sell for around £40,000. I hope to realise this profit within the next few years.

"My own and my employer’s contribution to my workplace pension amount to 12 per cent of my salary. My workplace pension is currently worth £50,000 and forecast to pay out £20,000 a year from when I’m 67, if there is a growth rate of 5.1 per cent. But I think I will need to supplement this with savings or adapt my investments to provide income because I will need double that amount in retirement.

"I was investing £900 a month, but stopped for a few months because I was between jobs. I am now looking to invest £2,000 per month, but am unsure into which one or two funds I should drip-feed this money over the long term.

"With my current investment portfolio, I have tried to put together a core of reliable funds to hold over the long term. Alongside these I also have some small ‘fun punts’ with which I have had varying levels of success. For example, my holding in Unite (UTG) is up 80 per cent since I bought it, but my holding in H&T (HAT) is down 20 per cent. I reinvest dividends and aim for my investment portfolio to have roughly the following allocation to ensure diversification.

“Because I have a long-term investment horizon I have a high risk appetite and try to invest more in downturns than sell due to fear of losses. To help reduce emotional reactions to market volatility, I roughly aim to sell 25 per cent of every holding when it has risen 20 per cent on what I paid for it, sell a further 25 per cent when it has risen 30 per cent and sell another 25 per cent when it has risen 50 per cent. But I leave the final 25 per cent to run. I have done this with my holdings in Unite, BATM Advanced Communications (BVC) and Finsbury Growth & Income Trust (FGT), and I am pursuing this strategy with Polar Capital Biotechnology (IE00B42P0H75) and Scottish Mortgage Investment Trust (SMT) via a stop-loss.

"This approach encourages me to retain holdings for the longer term and not sell them too soon – as I did recently with Burford Capital (BUR). I use the proceeds of sales of investments to rebalance the portfolio or make more punts. For example, I recently topped up my holding in Vanguard Global Small-Cap Index (IE00B3X1LS57) and bought Bango (BGO).

"But I am worried that I have too many funds. I invested in Vanguard LifeStrategy 100% Equity (GB00B41XG308) to have [what I think] is a low-risk investment. But I fear that its large-cap exposure is duplicated by some of my other holdings, so perhaps I should look to non-equity products to balance the risk.

"I don’t have any exposure to bonds, so I am thinking of investing in M&G Optimal Income (GB00B1H05718), MI TwentyFour Dynamic Bond (GB00B5VRV677) or Jupiter Strategic Bond (GB00BN8T5935). But I don’t really know enough about them to choose one over the other, so have not yet invested in any of them.

"I am thinking of selling H&T, Oakley Capital Investments (OCI) and Phoenix (PHNX) because these are shorter-term investments which I would not miss.

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

THE BIG PICTURE

Chris Dillow, Investors Chronicle's economist, says:

There’s a lot you are doing right here. Most importantly, you’ve started investing young so should benefit from compound returns – a powerful force. Somebody who invests £1,000 per year for 30 years could reasonably expect to make £15,000 more than somebody who invests for only 25 years. That’s a £15,000 return on a £5,000 investment.

You’re also wise to diversify internationally. Although stock markets around the world rise and fall together, in the short term there can be huge long-term differences in returns. Long-term investors should diversify to spread the risk of one country underperforming a great deal over the years. And you are very exposed to the UK because you work and own property here, but investing in overseas equities spreads these risks.

I applaud your decision to invest regular monthly amounts. Doing this is a good discipline and it’s also a way to buy more during dips, because when prices are low your fixed monthly sum buys more units of investments than when prices are higher.

But I’m not entirely sure about your tendency to sell into investment price rises. Doing this might deprive you of momentum profits, because with shares that are especially sensitive to sentiment, such as growth or emerging market stocks, momentum profits can be large. And some price rises are more justified than others – those due to good earnings growth are more sustainable than those caused by improved sentiment. Some people's motivation for selling winners can be motivated by the pleasure of chasing profits rather than by a cold-headed assessment of stocks’ prospects – are you sure you’re not one of these?

You might want to consider other ways of riding winners and trying to get out of them before they become overvalued. One good strategy is the 10-month or 200-day average rule: hold shares while their prices are above their 10-month average and sell them when they fall below it.

Rebecca Williams, client director at Brown Shipley, says:

You are currently paying a contribution of 6 per cent into your pension, which is being matched by your employer. To boost your retirement fund further, you should ask your employer if this is the maximum that they can contribute on your behalf or if they can match higher contributions.

You could also sacrifice some, or even all, of your yearly bonus into your pension which would save you income tax at 40 per cent and National Insurance contributions. Making pension contributions is also a way of recovering your personal income tax allowance, and avoiding the 60 per cent effective tax rate charged on income between £100,000 and £123,700.

You may need some financial advice to help you determine the exact amount you can contribute into a pension. This is because the annual pension allowance is reduced for individuals with high levels of income from sources including rental income, salary and bonuses.

Your regular Isa contributions of £900 a month amounted to £10,800 of your £20,000 annual allowance. So [if you restart making these] or have any surplus income, maximise your tax-efficient Isa allowance. Consider contributing to a Lifetime Isa, alongside your pension, to boost your retirement funds. You can open one of these if you are under age 40, and you can invest up to £4,000 a year into it and receive a government bonus of 25 per cent of what you contribute, up to £1,000. You can continue to pay into a Lifetime Isa until you are 50 and access the money without penalty from age 60.  

Although it is great that you are focused on investing, have you considered your financial security if you, for example, became ill and were unable to work for a long period? You have some cash that could cover short-term costs. But it would be a good idea to check whether your employer offers critical illness cover and income protection, and whether these benefits would be sufficient for you in an emergency. If they are not, consider taking out a private policy to ensure you are well protected.

Your pension is projected to give you £20,000 a year when you have retired, but you think you will need an income double that. A lifetime cash-flow plan would help you to better understand your current position, the impact of your proposed savings plan and whether a retirement income of £40,000 a year is achievable. If not, it will help you to understand the shortfall, and how to fill the gap or revise your plans accordingly.

A cash-flow plan would also help you estimate your wedding costs, and future childcare costs and school fees. It is worth noting that the average cost of a wedding is more than £30,000, according to Brides Magazine, which is almost a third of your current investment portfolio.

And a cash-flow plan would help you to understand your attitude to risk and capacity to withstand losses. You have a high appetite for risk at the moment, but this might change if you have a family, meaning your tolerance for taking risks and enduring stock market volatility could reduce. It is important to review cash flow plans regularly – particularly when there is a change in your personal circumstances. 

HOW TO IMPROVE THE PORTFOLIO

Chris Dillow says:

With regard to what to make a monthly investment into, your default option should be a low-cost global equity tracker fund as this is, in effect, a fund of all equity funds. Waiting to see if there is anything better can often lead to missing out on returns.

There are, however, some issues here. I would not have great hopes about making gains with your substantial investments in housing. For house prices in aggregate, valuations matter enormously: high ratios of prices to earnings predict falling prices. So unless you bought unusually underpriced properties do not bet on any capital gains.

Also remember that it’s not just returns that compound strongly over time – fund managers’ fees do too. An extra percentage point in charges over 10 years could easily cost you over £1,400 for every £10,000 you invest. So be careful about investing in actively managed funds. Always look to see if there is a comparable passive fund or cheaper active managed fund you could buy instead.

You ask whether you should hold bonds. I’m not sure. Holding bonds insures against some short-term falls in shares, such as those caused by heightened risk aversion or fears about economic growth. If you’re a genuine long-term investor, however, you shouldn’t worry so much about this volatility as you should be able to ride it out. And this insurance comes at a high price – losses in real terms if these dangers don’t materialise. Or losses in real terms if other dangers, such as rising interest rates, emerge. If you have a decent allocation to cash I’m not sure you need bonds.

Rob Morgan, pensions & investments analyst at Charles Stanley, says:

Although there is a good spread of investments in your investment portfolio, it is entirely invested in equities. Some exposure to bonds would be a good first step in terms of diversification, although I don’t see this as an absolute necessity given your likely investment timeframe and probable capacity for loss. Although adding this asset class would help even out the ups and downs, it could detract from longer-term performance.

Consider Sterling Strategic Bond or Global Bond sector funds which have and use their wide investment remits to maximise total return from the bond market – rather than funds that just prioritise income. More income-orientated funds often behave too much like equity investments to be true diversifiers. Alternatively, a broader multi-asset fund might provide additional diversification without being too restrictive in terms of where it invests.

Vanguard LifeStrategy 100% Equity is a low-cost core holding, but it isn't lower risk. This fund is heavily weighted to the US, a relatively expensive and highly rated market where you should expect volatility if the economic landscape worsens.

Broadly speaking, the funds in your portfolio are growth oriented, at both the quality end of the spectrum via Finsbury Growth & Income and secular growth end via your Baillie Gifford funds such as Scottish Mortgage Investment Trust. In a low growth, low interest rate environment companies demonstrating genuine growth potential have significantly rerated, and this has favoured funds whose managers have adopted this style.

Funds with a valuation and/or income bias have found life tougher. Value style investing has been out of favour for a longer period than at any other time. But going forward, a different set of companies may take up market leadership so it may make sense to add some more value-orientated holdings.