More often than not, student loans are spent almost as soon as they land in cash-starved current accounts. But Russell Forrest, a 22-year-old from London studying for a master’s in financial trading, invested what he saved during his first degree in the stock market.
“I didn’t want to squander my money on rubbish,” he said. “So whatever I had left of my student loan, plus what I had earned from my internships, I invested.”
Mr Forrest now wants to turn his £15,000 into £1m by the time he reaches 40, in the hope that it will support his lifestyle and plans to travel.
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“When I began in 2017, I set out to create a portfolio that followed the 60-40 stocks and bonds mix,” he said. “But I have stayed away from global funds because they leave me heavily invested in America’s market, whose shares are too expensive. Can I reach my goal without relying on the US?”
David Henry, investment manager at Quilter Cheviot, said:
I congratulate Mr Forrest on making such a good start to his financial life. Although the goal of having £1m saved by the age of 40 is an extremely ambitious one, and only viable at all if he makes large contributions to the portfolio as his earnings increase, building a sound financial base at the beginning of his career is to be applauded.
Mr Forrest mentions a desire to draw from the portfolio to fund trips abroad. However, he could instead reduce his contributions and build up cash savings outside the portfolio. You do not want to interrupt the compounding process by selling investments, if at all possible.
Assuming he does not need to draw from the portfolio in the near to medium term, it looks too conservative, with almost half held in bond funds and cash. For such a long-term investor, he is missing out on returns by holding these investments, which in some cases do not even keep pace with inflation.
I would encourage him to invest more – at least 80pc of his portfolio – in funds that hold stocks from all over the world. These funds will deliver a bumpier ride, but given Mr Forrest’s age, this is not something for him to be afraid of.
If the market falls while his salary is rising over the next 18 years, this will provide him with the opportunity to invest more at lower prices. By consistently saving and investing, he will enjoy the benefit when he is older.
Exchange-traded funds, which track markets at low cost, make up a large portion of Mr Forrest’s portfolio. I would suggest he adds some “active” funds, which cost more but whose managers try to beat the returns of the market they invest in. Scottish Mortgage, Britain’s largest investment trust, would be a good pick, having returned more than 350pc over the past five years.
Rachel Winter, associate investment director at Killik, said:
It is impossible for Mr Forrest to predict his earnings – and therefore the level of his portfolio contributions – over the next 18 years. But whatever they are, if he is targeting a £1m portfolio he is likely to require a high return on his investments.
Given he is investing for nearly two decades, I would question the need for any bond funds at all. These funds are also likely to fall in value if interest rates rise.
I would recommend Mr Forrest add funds investing in emerging markets and small companies, two areas of the stock market which have historically delivered high returns over the long term.
Active funds would be best given the wide divergence in performance between the best and worst stocks from these markets. A good fund manager should be able to pick out the best companies.
I would recommend the Newton Global Emerging Markets fund, which has beaten the returns of the market it invest in by a significant margin. However, Mr Forrest would need to buy it with a different broker as Trading212 does not provide access to this type of fund.
Smithson is meanwhile a good pick if Mr Forrest wants to add small companies to his portfolio. The investment trust is run by Fundsmith and has delivered strong performance since its launch in 2018, with its shares up by more than 90pc.
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