Investing: A model approach to investing | Personal Finance | Finance


Too many investors simply buy what takes their fancy and end up with a ragbag of investments that do not reflect their attitude to risk.

By working to a ready-made model portfolio instead, you can build a balanced and stylish blend of funds that work beautifully together.

The model

A number of online wealth managers set up model portfolios for investors who log on to their sites.

They ask simple questions such as your age, how long you are investing for, how much you already have set aside and what your reaction would be if markets fell by say, 20, 40 or 60 per cent.

The answers determine your attitude to risk, and the sites then recommend model portfolios based on whether you are a cautious, balanced or adventurous investor.

Sites such as Evestor.co.uk, MoneyFarm.com, Nutmeg.com, WealthSimple.com and Wealthify.com work to this model, producing globally diversified portfolios of investment funds, bonds and low-cost index trackers and exchange traded funds.

Low cost

Damien Fahy, founder of investment website MoneyToTheMasses.com, said model portfolios can help you avoid simple investment mistakes, such as putting all your eggs in one basket: “Too many people focus on the domestic UK market, which they understand better, and miss opportunities in the US, Europe, emerging markets and elsewhere.”

Others do the exact opposite and have too much diversification. “They end up holding multiple investment funds in the same sectors that do the same thing, and all rise together, or crash at the same time,” he said.

Michelle Pearce, chief investment officer of Wealthify, said model portfolios can empower people to give investing a try.

They also have low charges, starting from around 0.5 per cent a year, which means you get to keep more of the growth and income yourself. You can invest inside a tax-free ISA or a self-invested personal pension (SIPP).

Right mix

Many traditional online stockbrokers and investment fund platforms also offer model portfolios.

For example, Hargreaves Lansdown’s Portfolio+ offers six portfolios that invest in a broad mix of assets across a range of countries and regions.

Senior analyst Laith Khalaf said this improves the chances of investing your money in the right places: “Select one that best matches your investment goals and attitude to risk and invest for the long-term, at least five years and preferably longer.”

Khalaf has drawn up three basic model portfolios, below, each with five funds. He recommends reviewing your portfolio every year or so, to ensure it still fits your profile.

Conservative

25 per cent Newton Real Return.

20 per cent Investor Perpetual Tactical Bond.

10 per cent Legal & General Global Inflation Linked Bond.

20 per cent Threadneedle Equity Income.

25 per cent Troy Trojan.

Balanced

20 per cent Invesco Perpetual Tactical Bond.

25 per cent Newton Global Income. 10 per cent Stewart Investors Asia Pacific Leaders.

25 per cent Legal & General UK Index.

20 per cent Baillie Gifford Managed.

Adventurous 

20 per cent JPM Emerging Markets.

20 per cent Legal & General International Index.

20 per cent Man GLG Japan CoreAlpha.

20 per cent Threadneedle European Select.

20 per cent Standard Life Global Smaller Companies.



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