Crafting an effective investment strategy is no easy feat. Constant market fluctuations can make it challenging to stay aligned with your goals, especially when your investments are spread across multiple platforms. While having a bird’s-eye view of your portfolio is important, knowing what specific actions to take is even more crucial.
At Lumin Wealth, we offer personalised portfolio reviews to help clients assess whether their current investment mix is well-positioned for today’s market conditions. Let’s take a look at a recent example, along with analysis and tips from Investment Manager, Elliott Frost.
The scenario
James, a 45-year-old, earns around £95,000 annually and aims to retire at 60. He invests £2,000 monthly and has a pension plan through his workplace. His assets are in an ISA (90%) and a general investment account (10%), holding 21 direct stocks, investment trusts, funds, and ETFs. James’s total portfolio is £290,000, including £40,000 in cash.
Insights from Investment Manager, Elliott Frost
To achieve your desired goal of retiring at 60, you need to grow your portfolio enough to live off the income. Assuming 4% annual growth, and monthly contributions of £2,000, you could accrue almost £1,000,000 in 15 years’ time.
As a general rule of thumb, a 4% annual withdrawal rate is sustainable over a long-term retirement. Your assets will allow for an annual income of £40,000 a year in retirement. This may not be enough, bearing in mind the impact of inflation over time.
Diversification: region and sector
Given your goal, investment horizon and risk tolerance, a high allocation to equities is appropriate. Spread holdings across regions, sectors and other characteristics (‘diversification’). You have time to recover from market dips that are part of investing.
Diversifying into emerging markets may increase volatility, but can offer higher long-term returns. You directly own five of the FTSE 100’s 10 largest companies, along with others. I would consider selling these down (within your ISA for tax efficiency) and gaining a broader UK exposure by moving into a FTSE index tracker. This would continue to provide you with a strong dividend yield (3.5% currently), but release you from the burden of running a direct stock portfolio and from dependencies on the fortune of a few companies.
Diversification asset class
Consider allocating to bonds, which offer a fixed income and a return of your capital at maturity. Fixed interest assets will become more relevant near retirement as your risk tolerance decreases.
14% of your portfolio is in cash, which is on the high side. Savings rates of around 5% are unlikely to last. Instead, UK government bonds (gilts) may be an attractive option, particularly for higher rate taxpayers like yourself.
Tax efficiencies and financial planning
Consider any missed opportunities. Fully utilising your £20,000 ISA allowance annually could grow your ISA to over £850,000 by age 60, if you achieved 4% returns annually. You should always look to pay into an ISA first, before any extra contributions into your GIA. Investing in a pension attracts income tax relief on contributions and protection from capital gains and dividend taxes.
You can normally add up to £60,000 into pensions per tax year. In your case every £1,000 contribution would mean a £400 saving on income tax. Your workplace pension plan is invested in a fund chosen by your pension provider, which will move from growth to defensive assets over the next 15 years. This doesn’t align with your goals. Consider making an active investment choice, or even a self-invested personal pension for greater investment choice and flexibility.
Important: This commentary should not be regarded as advice, or a recommendation to take action. It is general information, based on a snapshot of this investors’ circumstances. Past performance is not a guide to future returns. The value of investments may fall as well as rise, and you may get back less than you invested.
Portfolio Check: Get personalised feedback on your portfolio
Investors often have multiple portfolios (eg SIPPs, ISAs and other accounts) with different investment mixes and holdings, which makes it harder to keep tabs on. A comprehensive Portfolio Check can highlight whether your current investment choices reflect your risk profile, any significant overlaps in positions, over/under-diversification, how funds have performed, and how costs and charges compare.
See traffic light example above. Often there is room for improvement across important investment dimensions. A professional/second opinion can highlight this.
Book a Portfolio Check with Lumin
To book your Portfolio Check, call 03300 564 446.
[i] Lumin’s in-house discretionary investment team use both active and passive products across a range of investment solutions. Our portfolios are actively managed as we aim to take advantage of market opportunities. Call 03300 564 446 to find out more, or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
