‘I’m in my 80s and the investments I made to pay the grandkids’ uni fees aren’t performing – help’

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Dear Victoria,

I am a worried octogenarian responsible for the investments made into a discretionary trust set up to help fund the tertiary education of my grandchildren. A few years ago, after reviewing the situation with a financial adviser, I decided to avoid their “off the shelf portfolios” and significant fees!

The date the trust will be liquidated is uncertain, probably on my death but no later than in four years when the elder grandchild is 18. Until the market downturn the portfolio performed well but since then, particularly after the rise in interest rates, it has lost value and is now stagnant at best.

The basic problem is that the current value of the portfolio is £316,400 but £104,000 is held in cash! Some is in a trust bank account paying no interest. The trust is largely funded by regular monthly payments out of income of £1,500, to mitigate inheritance tax, so the cash pile is growing.

To compound the agro my wife and I each have portfolios reflecting the same problems as the trust. Monitoring the lack of progress is a nightmare.

I would really appreciate your help.

Regards,

Peter

Victoria says:

You’ve correctly identified your portfolio’s big flaw – a third of it sitting idle in cash is way too high. It’s a shame to see your hard-earned savings being eroded by inflation without even earning any interest.

It’s true that cash is a useful asset as part of a diversified portfolio as it can help guard against stock market volatility. Plus having a small cash position is prudent to keep some powder dry, ready to pounce on new investment opportunities. But cash is not the risk-free option that many assume it to be. 

While there are no guarantees of course, history suggests that investing delivers better returns than cash over the long-term. So, I’d aim for a more modest cash allocation of around 5pc.

Central bank interest rate rises mean you can finally get a good return on that cash too. I’d think about upping your allocation to Royal London Short Term Money Market, an option somewhere between a savings account and a bond market investment. 

It was among the most bought funds on the interactive investor platform (where I work) in November for good reason. It invests in a diversified basket of very low-risk bonds that are due to mature soon, normally in under a year, and has a yield of 5.3pc which is above the UK headline rate of inflation – at last!

Moving on to your portfolio, I can understand why you’re concerned – 35 holdings are almost impossible to keep track of. While there’s no magic number of funds, I’d try not to go too far over 10 to 15 to keep trading fees low and your monitoring efforts to a minimum.

Sixteen of your holdings are nursing losses, which makes life easier in terms of where to consider simplifying your portfolio at least. I’d look at letting a decent chunk of those go unless you feel strongly towards them. This will allow you to focus on your winners instead.

Some of your holdings are also just too small to move the needle. Think about reviewing your holdings with less than 2pc such as Scottish Mortgage, Premier Miton European Opportunities, and L&G Artificial Intelligence ETF. Then either remove them altogether or pick a couple to make into big enough positions so that they can influence your overall performance.

In terms of how to structure your portfolio, I’d suggest having some core diversified holdings to make up the mainstay of your portfolio and then have a sprinkling of riskier “satellite” holdings with a lower percentage allocation round the edges.

As a key component which takes little effort to monitor, consider the Vanguard 40pc LifeStrategy Equity Fund, a well-diversified low-cost global portfolio with a 40-60 percentage split between equities and bonds. 

If you want to take on more risk, you could look at the 60pc or 80pc version, but I think there are plenty of fundamental reasons to have a greater allocation to bonds at the moment. Don’t take my word for it – just this month, Goldman Sachs hailed 2024 “the year of the bond.”

On that note, now could be a good time to up your exposure to bonds via your holdings, Jupiter Strategic Bond and Invesco Tactical Bond which could both be attractive core holdings in my view, providing asset class diversification beyond just equities.

On the equities side, you might also like to increase your weighting to iShares Core MSCI World ETF and iShares Core S&P 500 ETF to develop them into core holdings, too. Both are low-cost trackers which will help to spread your risk and provide geographical diversification at low cost.  

Once your key building blocks are in place, you can start to play around with some smaller riskier holdings. I notice you’ve got several funds investing in India – an exciting growth economy with a surge in investor appetite lately which has lifted its stock market to all-time highs. 

But in terms of portfolio construction, rather than investing in three different India funds, as well as an emerging market fund, for the sake of simplicity again, I’d stick to just one, perhaps Jupiter India since it’s been a star performer for you.

Elsewhere on the periphery, I’d keep hold of some top performers like Fidelity Japan, Schroder Global Recovery, Fidelity Global Technology, and a couple of others you like best. “Let your winners run”, as the trading adage goes.

When I look at your portfolio, this Mark Twain quote springs to mind: “I didn’t have time to write a short letter, so I wrote a long one instead.”

Constructing a simple portfolio with just a handful of investments isn’t always easy, but it’s likely to serve you best. Take the steps to streamline your portfolio, reduce your overall holdings, and make sure the final mix is diversified both across asset classes and geographies.

Good luck!