Making a lot of money from an investment portfolio is more stressful emotionally than one might expect.
The higher stocks rise, the greater the fear they will come crashing down, bringing the urge to take profits.
Bret Simmons, 55, from London, has had a flying run after investing heavily in trusts run by Scottish investment group Baillie Gifford, such as Scottish Mortgage and its US Growth trust. Both have roughly tripled in value over the past three years.
But the threat of higher inflation and altitude sickness from the gains led him to cash in two-thirds of his investments over the past two months. He is now sitting on £2m in cash, but with just eight years before he plans to retire, is unsure whether to reinvest.
“I’m stressed when I am in the market and can’t resist looking at my portfolio, but I am also worried about missing out on returns when I am out of the market. I want to get my money working for me again but am not sure where I should invest,” said Mr Simmons, who works in finance and spoke under a pseudonym.
He has a clear view on what to invest in. “I believe that technology has never been so important and the winning firms will take control of entire markets,” he said.
His target portfolio reflects that, with large allocations to tech-focused Baillie Gifford funds, as well as those buying Chinese stocks.
“Is this the right way to get my cash back to work? I want to maximise gains as I do not need to draw on the money to fund my lifestyle before retirement,” he said.
Jason Hollands, managing director of Bestinvest, said:
I would urge Mr Simmons to think carefully about the risks of going all-in on technology. One of the most important investment principles is diversification, both to manage risk but also to benefit from a wide set of opportunities.
His proposed portfolio has a number of vulnerabilities. First, it is solely invested in funds that buy stocks. While stocks do have the greatest long-term potential, they can also fall heavily in value. In a worst-case scenario this means a portfolio could plunge just before retirement. While the coronavirus crash last year was short-lived, other bear markets have dragged on for years and years.
The funds Mr Simmons is considering invest heavily in “growth” stocks and the portfolio also has a strong focus on both American and Chinese companies. I would encourage him to reconsider his approach.
He should broaden the portfolio so it is not made up entirely of funds investing in shares. Invesco Physical Gold ETC, HICL Infrastructure and TR Property are good fund picks to accomplish this.
Secondly, he should cut back on China funds in favour of those that buy British stocks, which are trading at cheap levels. Evenlode Income, Artemis UK Select and Fidelity Special Values are good funds to consider.
Rory Mcpherson, head of investment strategy at Psigma Investment Management, said:
Time in the market beats timing the market. Taking Britain’s FTSE All-Share index as an example, investors who missed the 10 best days in the last 25 years would have made 175 percentage points less than the market return. A long-term approach is crucial and Mr Simmons should avoid the temptation to try and time the market.
He would sleep better if he had a more diversified portfolio, rather than relying largely on returns from one investment manager, Baillie Gifford.
This does not mean giving up growth, however. The most attractively priced growth stocks are in Asia, so Mr Simmons could buy the RWC Nissay Japan Focus fund. Clean energy and the infrastructure behind it are also exciting areas to invest in, which Mr Simmons could do by buying the Ninety One Global Environment and Franklin Templeton Clearbridge Global Infrastructure Income funds.
The Polar Capital Healthcare Blue Chip fund would be another useful addition to the portfolio. I would also recommend Mr Simmons buy funds investing in cheaper “value” stocks to balance out those holding more expensive growth companies.
The Crux UK Special Situations and River and Mercantile Global Recovery funds would help inject this balance in Mr Simmons’ portfolio.
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