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The least any investor should aim for is to protect the value of their savings, ensuring it does not fall right before they need it. Such strategies can be complex, but one way to ensure you have as much as possible is to keep a lid on costs.
Tracker funds take human stock-picking, and associated costs and mistakes, out of the investing process buying and holding huge swathes of the stock markets for low fees. A typical passive fund costs 0.12pc versus 0.75pc for an active fund one so it is no wonder that passive investing has take off. £1 in every £3 is now invested passively in Britain, according to Calastone, a company that tracks fund flows.
However, picking the right passive funds is not easy. There are hundreds available, all tracking different types of markets and charging different prices.
Telegraph Money asked Provisio Wealth, a wealth manager, to design a passive portfolio that will protect a savers’ cash while steadily growing its value.
A third of the portfolio should be invested in stocks. Philip Bailey, of Provisio, said passive funds were the best way to invest in shares as costs were low and an investors were guaranteed to own all the winners in a market. Although they would of course also own all the losers.
“Active funds try and consistently beat the market but face a challenging task. It is not impossible, it is just that the millstone of higher fees makes it difficult for active funds to offer superior fund performance,” he said.
For a defensive portfolio, he said around 20pc of the portfolio should be in British stocks via the HSBC FTSE 100, HSBC FTSE 250 and Vanguard FTSE UK Equity Income index funds, which charge 0.09pc, O.12pc and 0.14pc respectively.
Investors should also own US shares via the Fidelity US Index, which charges just 0.06pc, Asian shares via the HSBC Pacific Index, which charges 0.17pc, as well as a small position in European stocks via the First Trust Eurozone AlphaDEX Ucits ETF, which charges 0.65pc.
Bonds should account for about half of the portfolio. They pay a steady income and often do well when share prices are falling.
Mr Bailey said the Vanguard UK Investment Grade Bond Index, which owns the debt of highly-rated companies from around the world that is issued in pounds, was a good choice charging just 0.12pc.
Investors should also own the Legal & General All Stocks I-L Gilt Index, which owns debt issued by the British government that links payouts inflation for a 0.15pc fee, as well as the Vanguard UK Short Investment Grade Bond Index, another fund which owns bonds issued by companies in pounds.
Mr Bailey said one active fund deserved a spot in the portfolio, the Aegon High Yield Bond fund, which invests in riskier bonds.
“An index based on the size of the debt is not necessarily a sound strategy to invest in, particularly at the moment, where it is easy for companies to access cheap credit.
“There are hardly any passive high yield bond funds in the marketplace and we have seen providers close their funds due to them not attracting sufficient capital. This is the only asset class where we believe that an active strategy is capable of consistently outperforming the market,” he said.
The final part of the portfolio, at around 10pc, should be invested in property via the iShares Global Property Securities Equity Index Fund, which owns a basket of real estate investment trusts from around the world for a 0.17pc fee.