To make real money, you have to take risks. This is my 10-year Growth Portfolio, which goes all-out for growth and includes a big chunk of overseas investment.
Many buy-to-let investors have been happy to finance up to 80% of the value of their property with borrowings.
Compared with that level of risk, even my 10-year Growth Portfolio is tame. But it does put some of the UK’s best investment managers to work on your money and gets you stakes in most of the best capital growth opportunities in world markets.
This portfolio is designed for investors who are confident they won’t need the money for ten years but want to make the maximum returns possible, and will accept big short-term fluctuations in value. I think you should be prepared for the possibility of seeing swings of up to 30% in value in a 12-month period. Of course in a doomsday meltdown it could be even worse than that (it was in 2000-2002 and in 1973-74) but history suggests that provided you can wait, markets recover and restore you to profit.
NB: Please use the updated version of the ten year all-out growth portfolio.
Aiming for 10% a year
Anyway, if we assume that in the long run, shares earn an average annual return of 5% on top of inflation, then I think a realistic target for a high-growth portfolio like this is 10% a year on top of inflation. Much of that extra return represents reward for extra risk. I would be amazed if we got through the next decade without seeing one or two 12-month periods in which the value of such a portfolio fell by a quarter.
If the portfolio meets its target, its value at the end of the decade will have risen from £20,000 to almost £52,000, and another decade will take it to £134,000 - in real, spending power terms. And unlike buy-to-let or business investments, this is capital that doesn’t require you to do any work but pays you to own it.
I do recommend regular reviews, of course. If the financial situation changes dramatically, it may make sense to adjust the amounts invested in different types of asset, and if fund managers leave or fund management groups get taken over, you may need to switch from one fund to another.
Set up your portfolio using a fund supermarket to avoid initial fund charges and for the convenience of a single online valuation.
The £20,000 Medium-Term Growth Portfolio
| Asset Class | Investment | Amount | % of total |
| Cash | | Nil | 0 |
| Fixed Rate | | 2,000 | 10 |
| Aegon Global Bond | 1,000 | 5 |
| Framlington Pan European Bond | 1,000 | 5 |
| Property | | 3,000 | 15 |
| M&G Property | 1,500 | 7.5 |
| Standard Life Select Property | 1,500 | 7.5 |
| Shares | | 15,000 | 75 |
| UK (30%) | Standard Life UK Equity High Income | 3,000 | 15 |
| Invesco Perpetual UK Aggressive | 1,500 | 7.5 |
| AXA Framlington UK Smaller Companies | 1,500 | 7.5 |
| Overseas (45%) | M&G International | 2,000 | 10 |
| JP Morgan Global Equity Income | 2,500 | 12.5 |
| Threadneedle European Opportunities | 1,500 | 7.5 |
| Jupiter Financial Opportunities | 1,500 | 7.5 |
| Aberdeen Asia Pacific | 1,500 | 7.5 |
| Total | | £20,000 | 100 |
The logic of growth
The portfolio contains 10% in fixed interest, which is there as a dampener on extreme price movements. Property at 15% includes both a UK and overseas element. I expect property to produce returns of around 7-8% a year and with less volatility than you get with shares.
The 75% share content is divided 30% UK and 45% overseas. Many people would say that the overseas content is too high, but I agree with Fidelity superstar Anthony Bolton that whether a company is ‘UK’ or not is pretty meaningless in today’s world economy. In what sense is BP a UK company? Or HSBC? Or Unilever? So I think all investors need to get used to the idea of having more of their money in funds that include investments outside the UK.
The geography is only one way of looking at it. The style and risk profile is even more important, and our set of funds includes two lower-risk ones (SLI UK Equity High Income and JPM Global Equity Income) and six riskier ones.
But the lower-risk two contain £5,500 while the higher-risk five contain £9,500, so (as with our other portfolios) we are using asset allocation, geography and style together to create what we hope will be the highest return for the risk.
If you are really gung-ho for growth, you can adjust the proportions by putting a bit more into the hi-6 and less into the lo-2; or, if you want less volatility, remove the European and Asia Pacific funds and increase the investment in M & G International Growth and JPM Global Equity Income.
Fixed interest for safety
Aegon Global Bond is a go-anywhere, buy-anything fixed interest fund which should avoid downturns in countries or regions but still profit from interest rate downtrends.
Framlington Pan European Bond invests only in the world’s second-biggest fixed interest market, which because of historical geographical boundaries still offers opportunities to profit from unwarranted price discrepancies.
Property for steady growth
M&G Property invests solely in UK offices, shops and warehouses. It is managed by the same team that runs the Prudential’s huge property portfolio and I regard its lead manager John Cartwright as one of the soundest in the business.
Standard Life Select Property was launched in Autumn 2005 and invests in physical property and in property shares in the UK and overseas. The fund currently holds about three quarters of its assets abroad and it has a large and experienced management team.
Shares for faster growth
Standard Life UK Equity High Income aims for long-term growth in capital and income from investing in UK shares. It should be the steadiest performer of the share-investing funds in this portfolio.
Invesco Perpetual UK Aggressive and AXA Framlington UK Smaller Companies should achieve more rapid capital growth, but will also suffer bigger falls in market downturns.
The overseas-investing funds include one lower-risk and four higher-risk.
The lower-risk fund:
JPM Global Equity Income is a conservative-style fund because its high income orientation means it invests mainly in big companies paying large dividends, such as utilities. Manager Gerd Woort-Menker is supported by over 50 analysts looking for opportunities worldwide and this is just the type of fund to benefit from JPM’s disciplined team approach.
The higher-risk funds are:
M&G International - Manager Graham French will go-anywhere, buy-anything, except UK companies.
Threadneedle European Smaller Companies - Manager Dave Dudding has produced spectacular results over the past few years, and while there may be short periods in which bigger companies do well in Europe, the huge European market now offers excellent opportunities.
Aberdeen Asia Pacific - This is the top growth region of the world and will be for the next decade; Hugh Young’s top-rated management team should secure good profits here.
Jupiter Financial Opportunities - Philip Gibb’s one-minded focus on one of the biggest investment sectors has produced spectacularly good results and the growth of emerging markets should present him with plenty more profit potential.
Important Notice and Risk Warning
The EveryInvestor model portfolios are for general guidance only and do not constitute a recommendation for anyinvestor. EveryInvestor does not provide individual investment advice. Your own personal circumstances and tax position must be taken into account in selecting investments. EveryInvestor recommends that you obtain advice from an independent financial adviser before making investment decisions.
The value of your investment and the income from it can go down as well as up and you may not get back a significant proportion of your investment. Past performance is not an indication of future performance.
