We will tell you about the winning strategies to invest into the right thing, no matter how much money you have by now.
Whatever the sum you have on your bank account, the option you choose to invest them in can bring you hundreds of thousands…or draw them from you. If you decide to invest in a long-term project and are ready to act patiently through the ups and downs that may happen toy our investment, you may want to take more risk. One of the options is investing in the stock market, which may bring you more long-term benefits, but it will be more like a rollercoaster than a stable situation.
However, if you need fast money or want to have an access to your investments and benefits, or in case you don’t have some budget to back yourself during hard times, you may want another option. You may also take the view that you’re not emotionally comfortable with ups and downs, even if you have longer to invest.
That’s the theory, but what would it mean to someone with a sizeable lump sum — say £50,000 — to invest? We asked three financial advisers what they would suggest for different types of investor.
The cautious investor
Although £50,000 sounds like a lot of money, how much you’re investing is fairly irrelevant to the type of assets you choose to buy, says Darius McDermott, the managing director of Chelsea Financial Services. “Your asset allocation depends on your attitude to risk,” he says. “So the amount of money shouldn’t make any difference.”
However, having a sizeable sum does mean you can spread your bets across a broader range of funds. The underlying assets that these funds give you access to won’t change, but you will reduce the impact of any one fund manager making poor decisions.
Mr McDermott’s view is that cautious investors should split their money between absolute-return funds — which aim to deliver a positive return in all market conditions — cash, property, fixed-interest bonds and alternative assets such as infrastructure. He also thinks there is a case for investing a small amount on the stock market via equity-income funds. These hold shares in companies that tend to pay more dividend income, which offers some protection if the share price falls.
Mr McDermott’s fund picks in the absolute-return category are Henderson UK Absolute Return, Premier Defensive Growth, Church House Tenax Absolute Return Strategies and Smith & Williamson Enterprise. For equity-income funds, he’s keen on Rathbone Income, Woodford Equity Income and Fidelity Global Dividend. However, while the former group might account for as much as 40 per cent of his cautious portfolio, the stock-market funds won’t add up to much more than 10 per cent, with the rest of the £50,000 split between other assets.
Philippa Gee, the managing director of Philippa Gee Wealth Management, also makes the case for investing in a broad spread of funds to achieve asset allocation objectives. “With £50,000 you can start building a more diversified portfolio, and I would aim for ten holdings,” she says.
Most of Ms Gee’s picks are at the cautious end, including Miton Defensive Multi Asset, Ruffer Total Return, Trojan Income, Fidelity Multi Asset Allocator Defensive, and HSBC Global Strategy Cautious Portfolio.
The balanced investor
“Balanced investors tend to look for a combination of capital growth and capital protection,” says Patrick Connolly, a chartered financial planner at the independent financial adviser Chase de Vere. “You’ll want to invest in assets with growth potential, such as equities, but also in assets that can provide more protection, such as fixed- interest or absolute-return funds.”
One option is to look for multi- asset funds that invest in these different assets within a single product. Mr Connolly suggests one or all of the following: Investec Cautious Managed, Invesco Perpetual Distribution and AXA Framlington Managed Balanced.
However, with £50,000 at your disposal, you also have an opportunity to choose specialist funds in each asset class, building a balanced portfolio of investments that’s right for you, rather than getting a general fit from a multi-asset fund manager.
The exact asset allocation you go for will depend on your circumstances. “A good blend could be to invest 50 per cent in global equities, 20 per cent in fixed interest, 20 per cent in absolute-return funds and 10 per cent in commercial property,” says Mr Connolly. For that portfolio, his fund picks would be Rathbone Global Opportunities, Schroder QEP Global Core, Jupiter Strategic Bond, Henderson UK Property and Newton Real Return.
Ms Gee again suggests that ten funds would be ideal for a balanced investor with £50,000 to consider. Such an investor would have some holdings with a more cautious profile — Miton Defensive Multi Asset and Ruffer Total Return are good choices, she suggests — as well looking for opportunities to take on more risk. Ms Gee suggests that investment trusts — investment funds listed on the stock market — might be a good way to get exposure to global markets, singling out Alliance Trust and Scottish Mortgage as options for balanced investors.
Mr McDermott’s advice to an investor prepared to adopt a more aggressive strategy is that it may still not make sense to invest every penny on the stock market. Holding £5,000 of your £50,000 in absolute-return funds will provide you with some diversification and protection, he argues. His favoured option is Church House Tenax Absolute Return Strategies.
As for the rest of the portfolio, make sure you’re getting a good spread of stock-market investments — overseas companies as well as UK shares, stocks from developed and developing countries, small companies and large. “You could also allocate some small amounts to long-term specialist areas,” Mr McDermott suggests. “For example, perhaps invest in AXA Framlington Global Technology or Polar Capital Healthcare Opportunities, and maybe even some commodity equities such as JPM Natural Resources or Baring Global Agriculture.”
“For these investors, the focus is on capital growth and they’re willing to take a high degree of risk to achieve this, so they’re prepared for the value of investments to fall in value, in the short term at least,” says Mr Connolly. “The more risk you take, the more likely you are to make big gains, but also the more likely you are to make big losses, so you need to decide what is the right balance for you.”
Mr Connolly suggests a five-way split between Fundsmith Equity, Liontrust UK Smaller Companies, BlackRock European Dynamic, Schroder Asian Alpha Plus, and Fidelity Emerging Markets. However, like Mr McDermott, he also suggests that investors consider specialist funds — for exposure to particular sectors and to individual countries.