‘Now we’ve reached our 70s, should we make our £136,000 portfolio less risky?’

Victoria Scholar
Victoria Scholar

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Dear Victoria,

I am 73 and my wife is 70. We are both in reasonable health.

We have a combined net income of £61,000 with no mortgage and adequate savings.

Please rate our combined portfolio. I am concerned that it may not be diverse or conservative enough for our time of life.

The portfolio is as follows:

Regards,

Rob

Dear Rob,

I really like the simplicity of your portfolio. We often see from Rate My Portfolio submissions that readers tend to overcomplicate things by holding many different single stocks and funds that can be very difficult to keep track of.

Instead, you’ve managed to achieve asset class diversification via just eight funds, with an allocation of 41pc to equities, 44pc to bonds and nearly 15pc in cash – which, wisely, hasn’t been left idle, and is instead put to work via a money market fund.

In terms of your concern that your portfolio might not be conservative enough for your stage of life, why not start with the “Rule of 100”, where you take 100, then minus your age to provide a rough indication of the percentage of equities you should hold.

Some people prefer the “Rule of 110” these days, since people are living longer. Either way, 30pc to 40pc in equities for you is about right, which is where you’re at.

However, on closer inspection, one of your bond funds, Artemis High Income, behaves more like a riskier equity fund by investing in “high yield” bonds.

This accounts for almost a fifth of your portfolio, which is quite hefty, and might be one to reconsider if you want to be more conservative. Remember back in 2020 it plunged 17pc between mid-February and the end of March as investors bet on corporate collapses during the panic, and uncertainty at the onset of the pandemic.

For a safer, lower risk bond fund that might suit your risk appetite better, take a look at Vanguard Global Bond Index Hedged, which invests in 14,000 higher quality investment grade and government bonds from around the world with maturities of greater than a year.

Now that asset class diversification has been discussed, the next thing to think about is your geographical diversification – that’s something you need more of, in my opinion. At the moment, you’re heavily exposed to the United States via L&G US Index, Fundsmith Equity and Rathbone Global Opportunities.

While there’s no denying that the US has been a fantastic source of growth in recent years, there’s no guarantee of future outperformance, so adding some exposure to other developed markets, as well as emerging markets, will help spread risk.

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For a one-stop shop for global equities which isn’t too overweight the US, the Vanguard LifeStrategy 100pc Equity is worth considering, with 23pc in the UK, 10pc in Europe ex-UK and 5pc in Japan. Granted, about half of the fund is still invested in the US, but that’s less than your other three funds, which all have two thirds at least.

Finally, 15pc in cash isn’t insignificant. But since you’re concerned about risk, keeping cash on the sidelines in a low-risk short-term money market fund like Royal London, like you are doing, is one way to keep risk low.

Although I don’t know when you bought each of your holdings, I would guess that your performance hasn’t been bad given that all your funds are in positive territory over a one-year, five-year and 10-year period.

Combining this with the fact that you’ve got joint net income of £61,000, no mortgage and what you describe as “adequate” savings, it sounds like you’re in a good position.

If you aren’t already, I’d make sure you are putting these savings to work, either by investing in funds or locking in a solid savings rate before interest rates come down.

I assume you are both still working to generate your annual earnings – something to think about if you haven’t already is how to generate income during retirement from your portfolio via fixed income and dividend funds.

That’s something I’ve discussed in previous articles, if you’re interested to learn more.

Good luck with your investment journey!

Victoria is head of investment at Interactive Investor. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.

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