Where multi-asset funds are finding income
FundCalibre’s Investing on the go podcasts have developed a theme in recent weeks: how to make up...
The first day of spring is here, the cherry blossoms are filling Battersea Park, and daffodils are popping out of the ground as the weather very slowly begins to turn. It’s my favourite season, full of fresh springs and lazy afternoons in the park walking the dog. I’ve recently learned it is also ‘ISA season’.
Before starting this role I would have never thought ‘ISA season’ was a phrase used even once, let alone daily. It also means when people ask about work on those afternoon walks through the park, I find myself answering ISA this, and ISA that, which prompts the question: so what do you invest in?
Many of friends stick to cash or an index fund because “it feels safe and simple” and the notion of ‘building a portfolio’ seems overwhelming and scary. The general consensus seems to be they think they need a have between 10-15 funds to have a good portfolio, so instead they choose a tracker fund and call it a day.
It’s important to note that the number of funds which should be held within a portfolio will vary depending upon the amount invested. As a rough guide, a reasonable number would be around 10 funds in a portfolio of over £30,000 and 15-20 in one over £100,000. But where to start?
‘The secret to getting ahead is getting started.’ – Mark Twain, author
Start with asking yourself, are you a risk-taker? No, it’s not a typo – your personal attitude to risk is very important and acknowledging it about yourself will give you a much better night’s sleep.
Now ask yourself can you take the risk? For most young investors the answer will be ‘yes’ when it comes to retirement as it is such a long time horizon, but maybe the answer is ‘no’ if you need the money soon for a house deposit. So it’s important to consider what the money is being used for and when, when you think about risk – especially if you’re a natural-born risk taker.
While I’m a huge risk-taker when it comes to my personal life and love the adrenaline from bungie jumping, the idea that all my money could be in emerging market equities would put me in a hot sweat. That doesn’t mean I’ve shunned all emerging markets and only choose low-risk investments – it simply means I’ve found a balance that works for me.
For example, balancing higher-risk Magna Emerging Markets Dividend with lower-risk M&G Strategic Corporate Bond, would give me both equity and bond exposure and it takes into account my own attitude towards risk, meaning I would sleep better at night.
Whether you’ve started with one, two or five funds, remember to monitor your portfolio, at least on an annual basis, as some of your investments will outperform and others will underperform, so your portfolio weightings may have shifted. This could mean you’ve accidentally taken on a higher or lower risk profile than you intended and you need to rebalance. It could also be time to add another fund to your growing portfolio.