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Rate my portfolio: 'I ignored my parents' advice – will my funds make 8pc a year?'

·4-min read
Rate my portfolio
Rate my portfolio

Starting investing young allows the maximum amount of time for returns to compound and grow into a substantial pot to fund major life events, such as a house deposit, or even retirement.

But where you invest also matters. For example, starting from nothing and investing £250 a month into Fundsmith Equity, Britain’s largest fund, would have turned into almost £85,000 over 10 years. The same amount, totalling £30,000 in contributions, would be worth £41,500 if it was invested in a British stock market tracker fund.

David Wunderle, 24, from Plymouth, has built his own investment portfolio of 11 funds with the aim of using around half his money on a house deposit, possibly within the next five years, and putting the rest away for a much longer period.

“I have always been fascinated by numbers and would read about the stock market in the newspaper. I started investing at 18, putting aside £125 a month, but have since added a number of £10,000 lump sums,” he said.

Mr Wunderle, who works as a hotel manager, now has a £44,000 pot that has grown from his £35,000 invested. Last year he made lots of changes to his portfolio, such as ditching the bond funds his parents had recommended he buy, and instead investing the money in funds buying fast-growing companies.

“I’ve gone from owning a lot of British funds to being more globally diversified and have a lot invested in funds which own healthcare and technology stocks. While I know this can be risky I believe it’s the right place given my long investment horizon. My aim is to make 8pc a year. Is this realistic? My parents think 5pc is more likely,” he said.

Ryan Lightfoot-Brown, Chelsea Financial Services, said:

Firstly, Mr Wunderle should be commended for building such a globally diverse portfolio at a young age, as well as having two very admirable goals of buying a house and saving for the long term.

But there is room for improvement. Firstly, the fund is very "growth" focused, including a fair few overlaps in terms of investment style.

This is best demonstrated by the multiple funds he owns from the same investment firms, such as holding both Lindsell Train's UK Equity and Global Equity funds, as well as owning Baillie Gifford Positive Change alongside the same fund group's American, British Smaller Companies and Emerging Market Leading Companies funds.

Mr Wunderle may want to consider cutting some of this overlap. Lindsell Train UK Equity to Marlborough Multi-Cap Growth would be the best like-for-like change.

There is an admirable allocation to active management, although this doesn’t seem to follow through with his European shares. He could replace Legal & General European Index with an active fund, such as Legg Mason IF Martin Currie European Unconstrained. It buys companies that have established businesses but are still growing fast, such as luxury goods firms Moncler and Kering, as well as Adidas.

Mr Wunderle said he would like to use half the portfolio to fund a house purchase, possibly within the next five years. This makes him a medium-term investor, yet the portfolio is all in stocks, with almost 20pc in smaller companies, which are riskier than large companies.

He could benefit from having some more protection in his portfolio, such as via fund that invests in a range of assets, including stocks, bonds and gold. The Momentum Diversified Income fund owns a diverse range of assets and would reduce the amount of risk he is taking.

Kelly Prior, BMO Global Asset Management, said:

Mr Wunderle’s portfolio should be able to hit his target of growing 8pc a year, however, because markets have risen so much in the past decade, there may be periods when it does not make as much as he would expect.

Given his need to use some of the investments to fund a house deposit, he should reduce the risk he is taking with the portfolio. One way to do this would be to replace Stewart Investors Asia Pacific Leaders Sustainability and ASI Europe ex UK Ethical Equity with funds that are more defensive.

The Man GLG Absolute Value and Tellworth UK Select funds, which aim to make money in all market conditions, fit the bill. They would help to protect his portfolio if the stock market crashed, giving him more chance of affording his house deposit.

His portfolio is currently skewed towards high-growth stocks. To add more balance in our own portfolios, we buy funds that own “value” stocks, which are cheaper and could perform better if interest rates rise. Mr Wunderle should do the same.

Two funds in this mould that we like are JOHCM UK Equity Income fund and RWC UK Equity Income. Both would also be good replacements for Baillie Gifford Smaller Companies.

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