‘I’m 28 and have £100,000 in Isa savings – but my portfolio is awful’

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Dear Victoria,

I am 28, and I started investing about nine years ago using a DIY stocks and shares Isa.

I used to have more time and would actively manage my Isa, and I also had less money so I was more comfortable taking risks on certain stocks.

I now have £101,634 in my account, of which £31,548.70 is cash. I have attached the stocks that I have invested in – as you can see, I have no funds just individual stocks that I have picked.

While I once fancied myself to pick stocks, I don’t any more and my portfolio has performed awfully – mostly because I backed British companies (I blame my dad for this).

My goal is to hit £1m in my Isa in the next 20 years (avg growth 5.8pc with dividends reinvested).

I still believe in the FTSE, but I also want to invest in Poland and Japan. I want to invest most of my capital in funds that reinvest the dividends.

I really need help, and feel that my confidence has gone.

– Edmund

Dear Edmund,

It is brilliant to see you started investing so young and have already amassed a pot worth over £100,000. I love your ambition to become an Isa millionaire over the next two decades – this is a fantastic and, dare I say, achievable goal.

When it comes to stock picking, some investors love getting into the nitty gritty of what’s going on beneath the bonnet – trawling through earnings reports, tracking share prices and dividend changes, monitoring management and strategic shifts and everything else that goes with staying on top of a stock.

Others prefer to take a less arduous – and probably less stressful – approach, sticking to funds either by opting for passive funds, active funds (if you like the idea of paying a bit more to have a fund manager do the stock picking for you), or both.

Since you’ve got less time now and you say your risk appetite has decreased, I’d suggest sticking mostly to funds as they will provide you with built-in diversification and save you the somewhat tricky, time intensive task of having to keep up with lots of different companies.

The first thing I notice is that you’ve allocated just over £31,000, or almost a third of your entire Isa to cash. That fraction is way too high – you could be putting much more of that cash to work, hopefully generating better returns, and moving in the direction of becoming an Isa millionaire more quickly.

There’s no doubt it is important to have some of your portfolio in cash so that you’ve got dry powder ready to pounce on any new investment opportunities, and possibly to have some set aside as a rainy-day fund too, depending on whether you have other savings. However, a more sensible percentage would be somewhere around 2pc and 10pc – so roughly between £2,000 and £10,000 for you.

In terms of your stock portfolio, there’s no doubt you’ve picked some fantastic winners. Rolls Royce has been a stellar FTSE 100 holding since the appointment of Tufan Erginbilgic as CEO at the start of 2023, who has spearheaded a successful turnaround at the engine maker – the stock is up over 160pc over the past 12 months alone.

You’ve picked some other solid blue chip UK winners, too, like Shell and Lloyds which are both very popular among Interactive Investor customers. However, I can see why you’d be dismayed by your portfolio’s returns with 10 out of 17 holdings in the red.

We’d all love to see UK PLC outperform, but the reality is that home bias has sadly punished British investors in recent years, while going global has helped portfolios outperform. Unfortunately, the UK market has been weighed down by the Brexit discount, a sluggish economy, underinvestment, and weak productivity.

In terms of how to breathe life into your portfolio, I’d consider adopting the “core-satellite” investment approach – start with the most important building blocks of your portfolio, a few globally diversified funds accounting for the lion’s share (70pc to 80pc) of your portfolio.

As a passive, core holdings, take a look at iShares Core MSCI World UCITS ETF, which is about 70pc invested in the US, owning the largest 1,500 companies in the world across developed markets. An active fund that would nicely complement this is Fundsmith Equity – it invests in “quality” shares like Microsoft and Novo Nordisk and has been performing well.

Despite disappointing returns in Britain, I still think you’re right to allocate some money here. It’s one of the cheapest markets globally and could re-rate once the economy steadies and interest rates fall. Private equity buyers are also snapping up UK companies, so clearly there is value according to some very sophisticated players.

JPM UK Equity Core is a nice core option worth exploring. It is benchmark-aware, meaning that returns won’t differ too much from the FTSE All Share index, but the managers will take overweight positions where they see opportunities.

It’s currently overweight oil and gas with Shell the largest position – a stock you’re a fan of already. It costs just 0.4pc, which is good value for an actively managed fund.

Once you’ve built up your core holdings and set some cash aside, a smaller percentage is left over for some riskier, more exciting satellite holdings – possibly including any single stock names you still feel attached to, or some more targeted funds, or both.

This is where your allocation to Poland could “zlot” in (excuse the pun). Although, I’m not entirely sure why you’re bullish here, possibly because it has rebounded strongly since the start of the Ukraine war and shares still appear cheap. The iShares MSCI Poland UCITS ETF will get you access. But with just 14 holdings, it is likely to be volatile so proceed with caution!

As for your desire to invest in Japan, I’d look at Man GLG Japan CoreAlpha Professional. It’s a new addition to our Super 60 recommended fund list. Opportunities in the portfolio are viewed as either “Core” or “Alpha”, although there is frequently some overlap between the two.

The team looks to maintain a core portfolio of large-cap value stocks, which are generally well-regarded in terms of quality and are often considered “blue-chip” but remain at attractive valuations.

They also target contrarian “alpha” opportunities: stocks that have underperformed the market for an extended period, often related to macroeconomic and business cycles. The fund is a top quartile performer versus peers over one, three and five years.

I’m sorry you feel like you’ve lost your confidence, but I hope this provides you with a starting point for how to go about reinvigorating your portfolio. You are clearly a very engaged and competent investor, so you have lots to be confident about.

With a few changes, such as switching more into funds and adopting the core-satellite approach to name a couple, I believe in your ability to become an Isa millionaire in your desired timeframe.

Good luck, and I look forward to hearing all about it when you get there.