‘I’m an investment banker on £195k. Can my portfolio help me afford a less stressful job?’
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Dear Victoria,
I’m 37 and work in investment banking in London, earning £195,000 plus a bonus of 50-80pc. My wife is 32, a test analyst in a stock exchange earning £60,000 plus a bonus of £5,000-£15,000.
We have a daughter, who’s seven and in prep school. The fees are £18,000 a year and increase with inflation, and soon to come VAT as well.
We have a mortgage of £550,000 on one property in South London, which is worth approximately £800,000.
I have two pension pots of £220,000 (old job) and a current one with £77,000.
My pension is invested in index funds tracking typical stock market benchmarks split between US (60pc), Europe (20pc), EM (10pc) and Japan (10pc).
My wife has one pension pot with a value of £120,000, all invested in broad indices tracking MSCI World stock market index.
I have invested in a Junior Isa for my daughter, and hopefully she does not spend it but continues to invest in her adult life.
I also have some agricultural land in India worth about £100,000. It has been appreciating by around 6-8pc a year and net income has been limited (not intensively farming) to £4,000 a year. It’s held more for appreciation of the land (hopefully) and diversification rather than the actual income.
I expect my wife and I will both work for the next few years, but she may take a sabbatical year or two occasionally. She intends to stop working completely around the age of 40 to 42 (in about 10 years).
My plan is to continue to work in banking until my late forties and then evaluate, perhaps to take a less stressful role with a significant pay cut and work another 10 to 15 years.
I hope to save enough to live a sufficiently comfortable retirement and be able to afford two or three long holidays in a year and be able to pursue hobbies etc and perhaps buy a second home elsewhere in Spain or Portugal. Does our portfolio and general position seem like this would all be possible?
Kind regards,
- B
Please see my family’s portfolio below:
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Dear B,
I’m hopeful your hard work in investment banking and exceptional financial planning will grant you the freedom to pursue some of your exciting life plans.
It is great to see that you and your spouse are growing your Isas, Lisas, pension pots and your daughter’s Jisa. Plus, you’ve done well to diversify your wealth beyond just the markets into some agricultural land in India and a property in South London.
In terms of your family’s portfolios, I like how you’ve decided to go with just a handful of funds, which makes tracking and managing your investments a lot easier.
In terms of the performance data you’ve shared with me, it looks like your funds are mostly doing very well for you – you’ve clearly done your research.
Across your various portfolios, you’ve got almost 20pc invested in Jupiter India. If you add on the £100,000 in Indian farmland, it comes to about a third of your assets invested in the country.
While the farmland is likely to be a good diversifier, having so much invested in one fund could be risky, even if it is a top performer. Jupiter India has returned 92pc over the past three years, and 26pc so far this year, compared with 60pc and 19.5pc for its benchmark, the MSCI India index.
With lower volatility than peers as well, this shows manager’s skill, and justifies both why you like the fund and why it has been one of the most popular choices on our platform over the past couple of years.
However, Indian shares have become expensive. The MSCI India index now trades on price-to-earnings ratio of 27, which is ahead of global shares at 22.5 times, and 14.5 for the FTSE 100 index.
If optimism fades about India’s prospects then the market could give back a lot of its gains. There are plenty of reasons to be invested there – and so far, your call has proven right. But like other emerging markets, India could be very volatile.
You might like to diversify beyond just India into a broader emerging markets fund to spread risk such as JP Morgan Emerging Markets or Pacific Assets to name a couple.
Your other big exposure is to US shares, which have a similar P/E ratio to India’s shares, making it another very expensive market.
You’ve got about half your overall portfolio in the Legal & General US Index. While there’s no denying it is a good tracker charging just 0.1pc, it is heavily invested in technology shares at 35pc of the fund.
Given that global index funds are about 70pc invested in US shares, I’m worried that you are too concentrated in the US market.
This is particularly relevant now that fears are spreading through markets about a possible recession in the US, following the very weak US jobs report in July and an uptick in the unemployment rate.
There are also worries that US tech giants may have overinvested in artificial intelligence without being able to deliver enough of a kick to profits. And billionaire investor Warren Buffett’s Berkshire Hathaway slashed its stake in Apple by a half this month, sparking nervousness that the US tech behemoths could be past their peak.
To diversify your portfolio, you could look to add some more UK shares, by either adding to your L&G tracker, or with an active manager, such as a Super 60 recommended fund, like R&M UK Recovery, which has a bias to cheaper shares but runs a diversified portfolio of more than 400 stocks.
You could also look at adding bonds. If markets are right that there is a US recession coming, then that would suggest interest rates cuts in the US, and in the UK, as central banks internationally tend to follow the Fed.
Bonds respond well to rate cuts, and also provide an income buffer in your portfolio, with the safest bonds now yielding about 4pc. Given you tend to prefer index funds, look at the Vanguard Global Bond Index Hedged £, which has rallied over the past month.
A couple of small things to mention before I finish – have you considered opening a Sipp to self-manage your pension? It would give you more control over how your pension is invested.
And finally, your cybersecurity ETF is only a miniscule part of your portfolio so isn’t doing much for your returns. I would either let it go altogether or buy more to achieve a more meaningful percentage allocation, depending on your conviction – that’s just something to think about.
Best of luck to you and your family.