And while spring cleaning has yet to make an appearance in my house, this season can still be a great opportunity to take stock of your finances. Is your nest egg doing what it’s meant to do? A solid one should have certain characteristics. These are the ones we believe are most important.
Any good nest egg needs to have exposure to a range of countries and sectors.
That diversification has been tougher to achieve in recent years as markets have skewed to a handful of US technology companies. This has meant passive investments in particular have tended to have very high weightings in the US (over 70% in the case of the MSCI World) and investors have had to be more deliberate in ensuring diversification.
This has been great while US markets have been off to the races, but is starting to look like a riskier approach today. It is worth ensuring that your portfolio is not pointed in one direction – unlike your chocolate egg, it’s got to last longer than the Easter weekend. Lazard Global Equity Franchise Fund is a good choice for investors who want balance across a range of markets – with 20% in the UK, 35% in Europe and 37% in the US.
Income is a bonus
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At times when markets are volatile, a little income can go a long way. It provides a reassuring cushion to falling share prices. A loss of 15% is hard to weather, but if you’re getting 5% back in income, it can help you stay the distance. And staying invested is vitally important; miss just 10 days in markets over the past 30 years and you’d have halved your return. Being uninvested during the best 30 days would have cut your returns by 83%. It’s a powerful argument for staying invested through thick and thin.
All income held in an ISA is tax-free, which can improve your compound return. Investors can choose from a range of equity income funds, but for a one-stop shop, the VT Chelsea Managed Monthly Income Fund is both income-generative and diversified. It holds around 28% in bond funds, and then a balanced range of equity funds, property and alternatives. Its yield is 5.92%.
It shouldn’t keep you awake…
It’s a good sign that your investment is well-aligned with your attitude to risk if you don’t think about it very often. If you are glued to a market screen, worried about volatility and short-term losses, your portfolio may be too risky for your needs. This may only have become evident during the recent market rout, which has exposed the concentration of many portfolios in a handful of names. You don’t have to sell out of your riskier holdings. Consider balancing it out with a steady-as-you-go bond fund, such as the M&G Strategic Corporate Bond Fund, managed by veteran manager Richard Woolnough.
But it shouldn’t be in cash
Cash feels very safe. You get back what you put in, plus a little bit of interest. It’s definitely the right option if you have a range of short-term goals – you’re planning to buy a house or a car or a holiday within the next couple of years, for example. However, it’s not a good home for your long-term savings. Even at current interest rates, which are relatively high by recent standards, you’re only just beating inflation.
Your savings should be working much harder for you. Periods of volatility like the one we’ve just seen can deter people from investing in the stock market, but it’s worth remembering that the S&P 500 has dropped around 12.3% in the current rout. It has risen 143% over the past decade. If you really don’t like the thought of stock market volatility, there are lower-risk options. A fund like Ninety One Diversified Income aims to insulate investors from the worst of stock market instability.
Don’t forget the UK
The UK market has been unloved, and while it’s been fashionable to knock it in recent years, there is a lot to like about UK companies. First, they are cheap on pretty much any measure you care to look at; they are cheap relative to their own history and relative to their peers. Second, the UK is improving – its economy is tentatively reviving – and third, investors coming out of US assets need a new home for their capital and there is evidence that some of it is going to the UK.
There is a certain comfort in investing in companies that you know, understand and use every day. The CT UK Equity Income Fund, for example, has holdings in Marmite-owning Unilever, plus everyone’s favourite sock (and Easter egg) destination Marks & Spencer. It also holds ITV, home to British institutions such as Ant and Dec.
While your nest egg can never match the short-term pleasure of its chocolate equivalent, a well-balanced portfolio can have more longevity.
Juliet Schooling Latter is research director of FundCalibre and Chelsea Financial Services
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
