FEATURE
Dialling down risk in your portfolio too soon could be a mistake Latest life expectancy data shows that your money will need to last a lot longer than you might think
J
ohn has just turned 50 and is concerned that his investment portfolio may be too growth focused and may need repositioning as he moves closer to considering retirement. The logistics manager from Sussex is not a novice investor and has a SIPP (self-invested personal pension), which his employer pays into, plus a couple of ISAs (individual savings accounts). But John has lacked the time to be very hands-on with running his portfolio so has restricted himself to researching and investing in trackers and a handful of actively managed growth funds and investment trusts, where he can benefit from the expertise of specialist managers to do the detailed equities analysis on his behalf. Growth investing has been very good to John over the 17 years that he has been investing, having put money into popular growth funds including Fundsmith Equity (B41YBW7), Baillie Gifford Global Discovery
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| SHARES | 13 May 2021
Fund (0605933), Jupiter UK Special Situations (B4KL9F8) and investment trust Scottish Mortgage (SMT). These active funds have returned an average
17.4% a year between them over 10 years. His collection of low-cost ETFs, such as Invesco EQQQ NASDAQ-100 (EQQQ), Vanguard FTSE All-World ETF (VWRL) and iShares Core S&P 500 ETF (IUSA) have also made excellent returns. IS IT TIME TO DERISK? John is now worried that, after hitting the half century age landmark, his portfolio may be too aggressive and too high risk and that now might be a sensible time to start reeling back on growth investments and taking a much more cautious approach. He has read about the ‘100 minus age’ approach, a common rule of thumb used to decide how much of an investor’s portfolio should be in equities, and how much in supposedly safer assets such as fixed-income bonds, gold or even cash. The rule says that you subtract your age from 100 to arrive at the ideal asset allocation for your investments. So, if you are 30, then 100-30 would give 70, which is the percentage of equity you should have in your portfolio, with the rest in safer assets. In John’s case, now aged 50, the rule implies that only half of his investment portfolio should be in equities, the other half in more reliable investments. Put simply, the rule aims to help investors decide how to position their portfolio as they
This is the latest part in a regular series in which we will provide an investment clinic based on hypothetical scenarios. By doing so we aim to provide some insights which can help different types of investor from beginners all the way up to experienced market participants.