Your return expectations are unrealistic

She also moves money out of the children’s general investment accounts into the Jisas each year to take advantage of the full annual allowance [£4,368 for the 2019/20 tax year]. The general investment accounts were seeded with one-off lump sums around the start of 2019.

And Catherine puts £100 for each child every month into cash accounts with attractive interest rates.

“I would like to provide a solid financial foundation, for example, to cover university or apprenticeship costs, a house deposit or travel,” says Catherine. “I hope to keep the money invested until the kids turn 21, and maybe they will keep the money invested beyond this.

“I’ve been running the kids Jisas for three years. But it's just over a year that I’ve been managing them more proactively so I would describe myself as a novice investor.

"I want to make a return of 20 per cent a year annualised, but don’t think the kids will sack me if I don’t hit that target! As long as I have made more than if their money was invested in a FTSE 250 tracker fund or cash by the time they are 21, I’ll not feel like I’ve failed them.

"The kids’ general investment accounts have made returns of about 19 per cent over the past year. But I suspect that was because I made the initial investments when markets were low rather than because of my fund picking skills. It’s quite a responsibility being in charge of their investments and there's the constant doubt as to whether I'm doing the right thing. So I'm trying to encourage friends to invest to have someone to run ideas by.

As I am investing for the long term, I'm willing to adopt a higher risk strategy if it offers the possibility of stronger returns. My current strategy is to find funds whose performance has a good upward trajectory, ideally as straight and steep a line on a graph as possible. I don’t mind the occasional dip as long as the upwards trajectory resumes.

"I’ve tried to put together a broad geographic mix including global, Asian and UK funds. I've invested in bond funds for security and stability, but I'm not entirely sure I need these given the investment time horizon.

"I tried to time the market, for example, with Investec Global Gold (GB00B1XFGM25) which rose 34 per cent in seven months. However, the stress towards the end of the holding period from wondering whether I should I sell it or whether it would go higher made me realise that I’m not suited to doing this.

"I think my fund picking approach could do with more of a quantitative focus. For example, I added Legg Mason IF Japan Equity (GB00B8JYLC77) because my daughter is interested in Japan. And I added LF Blue Whale Growth (GB00BD6PG563) because I saw a video of its manager, and video interviews are a quick and clear way to gain an understanding of a manager's strategy and attributes.

"I want the managers of my fund holdings to be more representative of the population as a whole so I invested in Troy Trojan Global Equity (GB00B0ZJ5S47), one of the few funds I found that is run by a female. 

"JPM Asia Growth (GB00B235GR40) seems to have a number of the same holdings as JPMorgan Emerging Markets (GB00B1YX4S73). So should I switch one of them into a more differentiated Asia fund?

"The kids are very into environmental issues, but I find ethical funds confusing because their criteria is so subjective and they describe their approach with terms by which I am baffled. I looked at [data provider] Morningstar’s Sustainability Ratings, but don’t know if these are the best way to judge how ethical a fund is. 

"I recently realised that three of the funds I hold are domiciled in Ireland. I don’t know why but a friend said that it is to pay less tax. I will sell these funds if that is the case."

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

THE BIG PICTURE

Chris Dillow, Investors Chronicle's economist, says:

It’s a good job your kids won’t sack you as their investment manager if you fail to hit 20 per cent annualised growth, because you have next to no chance of achieving this.

The world economy will probably grow by a bit over 5 per cent a year, on average, which includes inflation as well as real growth. Share prices could only consistently rise much faster than this if profits rise much faster than national incomes or share prices rise much faster than profits, that is, if equities become much more expensive. I don’t think either scenario is remotely plausible.

Nor is it likely that you – or anybody else – could consistently beat the market by very much over the long run.

So downgrade your return expectations massively. A more reasonable expectation would be for a 5 per cent annualised return after inflation, which would grow each £1,000 you invest to over £1,600, in today’s money, by 2030.

I have doubts about your desire to find funds “with a good upward trajectory”. There’s momentum in share prices so holding equity funds that perform well is one way to buy into this. But you might mistake fund managers’ luck for skill and end up paying fees for nothing. Research led by David Blake, professor of pension economics at Cass Business School, found that the majority of fund managers are genuinely unskilled. 

And you might buy assets that have become overpriced.

But I applaud your humility in describing yourself as a novice. In a sense, every investor is a novice because the future is largely unknowable. So don't feel that you need to research fund managers. Passive tracker funds are, in effect, cheap funds of funds so should be your default option.

Also make sure that you are not paying high fees for an active fund if there is a suitable, cheaper active alternative. 

Darius McDermott, managing director of Chelsea Financial Services, says:

You say you are a novice and that feelings rather than data have led your investment decisions. But you've got a better grasp of things than you give yourself credit for. You understand that you can take more risk due to your long time horizon, the portfolios are nicely diversified, you've chosen some decent funds and you've realised early on that that trying to time the market is pretty much impossible.

Monitoring a portfolio can be quite time consuming. However, if you invest in funds you shouldn’t have to monitor them as much, but rather reassess and rebalance them once or twice a year. We usually give underperforming funds a couple of years to turn things around if we understand why they are under performing and it’s to be expected in the prevailing environment. Everyone has bad years.

Last year equity markets did very well. But your expectations of continued annualised returns of 20 per cent are unrealistic. You have been lucky with stock market returns over the past couple of years, but they are not the norm and we are a decade into a bull market, so expecting the same will lead to disappointment. Over the past 100 years, equities' average annual return has been about 10 per cent before inflation and it can vary greatly from year to year. If you get 7 per cent annualised returns you can double your money in 10 years. This is probably a more realistic expectation given where we are in the economic cycle and still very good.

Another slightly unrealistic goal is to have a fund where performance goes up in a steep upward trajectory with only temporary blips. As per above, we have been in a bull market for more than 10 years and, at some point, there will be a longer correction.

Fund domiciles tends to be chosen not so much for tax reasons than for ease of distribution. Funds domiciled in Luxembourg and Ireland, for example, are easier to distribute across Europe.

If you'd like to see more videos or listen to podcasts with fund managers have a look at FundCalibre.com, an independent research site that has these and plenty of other resources. [Also listen to IC's personal finance podcasts and fund manager interviews]

Laura Suter, personal finance analyst at AJ Bell, says:

You've already built up an impressive amount for your children.

You want to the money to stay invested until they are age 21, but when your children turn 18 they will assume legal control of their Jisas. You hope that they will keep them invested but there is nothing to stop them splurging the money at that point. 

Saving and investing money each month is a good discipline, as is holding cash in high interest accounts. If you're not already doing it, you could set up a regular investing mechanism for the Jisas. This would save the grandparents having to transfer money every month and the charge for doing this might be cheaper than investing every month.

HOW TO IMPROVE THE PORTFOLIO

Chris Dillow says:

You are right to doubt whether your children's portfolios need exposure to bonds as these are likely to lose money after inflation over the next few years. Bonds compensate us for some short-term risks such as a recession or increased nervousness among investors. But your children don’t need to worry about these issues.

So, if you are going to drop your Irish-domiciled funds don't worry about finding an alternative to Royal London Sterling Extra Yield Bond (IE00BJBQC361).

If you drop Polar Capital Global Technology (IE00B42W4J83), you could reinvest the proceeds in environmental funds such as Impax Environmental Markets (IEM), Greencoat UK Wind (UKW) or Foresight Solar Fund (FSFL). But, in theory, virtuous stocks should deliver lower financial returns because they are more popular with investors than their growth prospects warrant.

If you want exposure to growth companies don't only consider funds that invest in companies quoted on public markets. By the time a company lists it may have experienced a lot of growth - in many cases most of the growth it will ever have. So, consider investing your children's portfolios in private equity investment trusts.

Darius McDermott says:

Consider increasing your allocation to Asia, emerging markets and Japan. It’s quite low at the moment and, as your risk tolerance is quite high, it would seem acceptable. Either put new money into these areas or switch the money out of bond funds into equity funds. Although bonds are a good diversifier I don't think that they are necessary in a higher-isk, long-term portfolio for children.

If you decide to keep an allocation to bonds, perhaps consider a slightly riskier [but potentially higher returning] fund such as M&G Emerging Markets Bond (GB00B7GNKY53), which also happens to have a female lead manager – Claudia Calich. She is extremely skilled in this area of investment and communicates well with investors, so her views are easily accessible.

JPMorgan Emerging Markets has an excellent track record, so I would hold onto this rather than JPM Asia Growth.

Also consider increasing the children's portfolios weighting to smaller companies: although they are riskier their long-term growth prospects are greater. Options include Liontrust UK Micro Cap (GB00BDFYHP14).

Only about 7 per cent of funds are run by women but some of those are very good. And the female involvement in running a fund isn't always obvious, for example, Legg Mason IF Japan Equity's deputy manager is female and very involved in running the fund.

Responsible or ethical investing is very subjective as one person’s ethics can differ widely from another's. So you have to examine every ethical or sustainable fund individually and decide if it meets your personal criteria. Some funds that are not marketed as being ethical might also meet your criteria, for example, none of the AXA Investment Managers funds invest in tobacco.

Other options include Investec Global Environment (GB00BKT89K74), which has only recently been launched but is run by a woman – Deirdre Cooper. Pictet Global Environmental Opportunities' (LU0503632878) managers, meanwhile, have identified nine challenges that include climate change, ocean acidification, biodiversity and freshwater use. All the companies that this fund holds must operate with due regard in each of these nine areas and actively contribute to solving environmental challenges.

Your children's portfolios include many funds run according to a growth investment style, which has done well in recent years. So, consider adding one or two funds run according to a value investment style. Examples include Polar Capital UK Value Opportunities (IE00BD81XX91), which has a very experienced and skilled female co-manager.

Laura Suter says:

Your investments are spread well across different asset classes, but could benefit from a better fund selection process. It’s great that you want to invest in what your children are interested in as it can be a good way to get them involved at a young age. But draw up a checklist of what you initially check when choosing funds.

It’s good to hear other people’s views on where to invest, but always take them with a pinch of salt and do your own research before buying a fund. This could include looking at how long a fund's manager has run it, how the fund has performed against its benchmark over different time periods, how large it is, and the company and manager who run the the fund. It can also be a good idea to write down why you decided to buy a fund so that if it underperforms you can check whether all those reasons still apply.

US equities and property are missing from your children's portfolios. Although they have a good allocation to technology, which will include US companies, also consider a fund for broader US exposure such as JPM US Equity Income (GB00B3FJQ482). If you invest in this buy the accumulation share class so that any income it pays is automatically reinvested in the the fund. Another option is a low-cost tracker such as iShares Core S&P 500 UCITS ETF (CSP1), which tracks the S&P 500 index and has a charge of just 0.07 per cent a year.

For property exposure, an investment trust might be a good option as it doesn’t have to hold cash to meet requests from investors withdrawing their money. This means that it could put more of the money you invest into the property market. Options include TR Property Investment Trust (TRY), which invests in European and UK property shares, alongside a small direct allocation to UK property.

There are some well-run funds managed by women. Examples include ASI UK Opportunities Equity (GB00B7LZCR36), run by Abby Glennie and Artemis High Income (GB00BJMD6R830), managed by Alex Ralph. Lots of funds have two or more managers, so you could also consider funds run by mixed gender teams.

Make sure that no single fund becomes too dominant in the portfolios. For example, LF Blue Whale Growth accounts for around 13 per cent of each of your children’s portfolios and Lindsell Train Global Equity (IE00BJSPMJ28) similar amounts. It’s likely that as these have performed well they’ve become a bigger part of the portfolios, so set a time each year to look at how much money you have in each fund and whether you need to redistribute it.