‘My parents were financially illiterate – how do I avoid their fate and save £500k?’

Dear Victoria,

I am 27 years old with a post-tax income of £2,550 a month with a realistic probability of scaling that to around £3,000 in four years. This job has a good pension with the non-overtime proportion of my pay (£33,342 a year) counting towards the pot. Total employer and employee contribution adds up to 33.5pc of base salary – so a healthy amount when compared to the national average.

Outside of my pension I have been conscious since a young age of the need to build a stocks and shares Isa portfolio due to the vast outperformance of equities since I became aware of the stock market around 13 years of age. For context, I grew up with parents who have effectively zero pension savings, minimal personal savings, and are financially illiterate and uninterested in the topic.

Personally I’ve always been inspired by the idea that smart moves at a younger age can allow ordinary people to slowly accumulate wealth. When I say this I am not talking about arrogantly demanding a route to millions.

But I am aiming for enough to provide a degree of flexibility in mid to later-life if I want to semi-retire in my late 50s or early 60s – which is likely given the trajectory of some of my colleagues. This leaves me with an ideal goal of £400,000-500,000 in today’s money by 2058.

For the 2024-25 financial year, after all my outgoings and with a significant margin of safety, I am left with £3,480 to put into my Isa. I say margin of safety because I view money put into the Isa as untouchable unless there was a significant adverse life event which required a raid of these funds.

Despite the probable rise in pay coming down the road, realistically the money in the Isa will be used to pay down the house further, car costs, and on childcare costs shared with my partner. So from now until age 45, £3,480 a year (increased by 2pc a year) is roughly the amount I can save. This, according to my calculations, will be £77,994 in contributions between now and age 45.

I currently plan to invest the £3,480 into a different ETF tracker or share each year. If the market is at an all-time high (as it is now) I plan to hold the money in the brokerage account and invest during one of the normal market cyclical pull backs.

I would welcome your expert opinion in rating my portfolio and any tips you have to reach my goals.

Thank you.

Brad

Dear Brad,

It’s great to hear you’ve been conscientious about saving from a young age, and realised the importance of building a stocks and shares Isa portfolio. And I love your goal to achieve a pot worth between £400,000 and £500,000 by 2058 – like you, I believe that investing works best if you think long-term.

Congratulations as well on an impressive portfolio performance so far, up almost 20pc already to a market value of £15,280. You’re clearly on the right track.

I notice you’re mainly in single stocks. You’ve clearly done your research and picked carefully as all your holdings have performed well. But I think you could make some changes to ensure that the breakdown of your overall portfolio makes a little more sense. You seem to be lacking a top-down strategy.

Try to get a bird’s eye perspective to make sure that you’ve got all the key building blocks to achieve your long-term goals like diversification, appropriate levels of risk-taking and a focus on growth rather than income, three things I think your portfolio would benefit from more of.

A good place to start would be to focus on funds. At the moment, you’ve only got 22pc of your Isa in funds – and all in only one pretty high-risk fund – Scottish Mortgage.

Greater exposure to funds could serve you well by reducing volatility and helping diversify your portfolio so you’re not overly exposed to the fate of any one company – Barclays, Walt Disney, or Dr Martens could all go south.

There’s often no way of predicting unforeseen negative circumstances and consequent share price sell-offs. That’s why it is usually best, cliche as it is, not to have all your eggs in one basket – it is much better to spread the net wider.

It might make sense to make up the mainstay of your portfolio with a “core” fund or two to provide the backbone of a global equities portfolio so that you own the market rather than just part of it.

While it could be tempting just to go for a US tracker fund, given that America’s stock market has tended to outperform in recent years. But we don’t know that this trend will continue to be the case until 2058, so it makes sense to be widely geographically diversified as a long-term strategy.

Check out F&C or Alliance Trust, two listed funds, which own about 400 and 200 stocks respectively, covering all major developed world stock markets.

If you’re cost-conscious, you could even just stick with a global tracker fund for this part of your portfolio such as the iShares Core MSCI World Ucits ETF or Fidelity Index World which is a solid “open-ended fund” tracking the same index. They cost just 0.2pc and 0.12pc in annual fees.

If you’re still keen on stock picking, you could add a few single stock holdings as riskier “satellite” positions around the edges accounting for a small percentage of your overall assets.

Given you’re young and seeking growth, technology shares are a must-have. The Invesco Nasdaq 100 Ucits ETF (ticker EQQQ) owns the who’s who of America’s tech giants and has been an excellent performer, up 140pc in five years. To add a “quality” focus to your Isa, take a look at GQG Partners Global Equity. Based in Florida, this fund group has an evolving definition of quality depending on market conditions, so may lean into tech or even oil shares depending on its portfolio managers’ views.

To add some cheaper shares to balance out your portfolio, look at Dodge & Cox Worldwide Global Stock Fund. It is currently trading at just 12 times earnings, compared to 17.8 for the MSCI World index. By owning out of favour stocks that it believes will bounce back, this fund hopefully will perform well in markets when expensive shares, like those in the tech sector, are under pressure, so it should work as a good hedge.

Although a popular strategy, be careful about waiting for pullbacks before investing.

Just because markets are at all-time highs, it doesn’t mean they won’t keep rising. Schroders, the fund manager, found that US shares have been at all-time highs in 30pc of months... since 1926.

If I were you, I’d automate things by setting up regular monthly investing – it saves on fees and means you take a lot of the emotion out of the decision making. Best of luck on your investment journey!

Victoria is head of investment at Interactive Investor. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.