Turn First 50 into a potent portfolio

When putting together a portfolio of funds, the easiest way to think about combining these is through the ‘core and satellite’ approach. This separates a portfolio of investments into two distinct segments: the first is a core of long-term, low-cost and highly diversified investments, while the other is a selection of more specialist satellite investments.

Many investors choose passive tracker funds for the core. These are not designed to outperform their benchmark indices, but they typically won’t underperform them either.

So you first build a core of low-cost passive funds to keep your core portfolio broadly diversified and then add in a few select actively managed funds as satellites to add value and hopefully improve performance.


Get asset allocation right

No investment is a guaranteed route to riches. But while you can’t eliminate risk completely, you can manage it by having exposure to a broad range of assets. This is known as diversification.

The idea is that losses suffered in one area will be balanced out by gains elsewhere. Should your investments in equities – another name for shares – take a tumble, for example, you would hope that your other holdings, in bonds or commercial property perhaps, rise in value. Should your UK shares suffer, your overseas shares may hold up better.

Diversification helps put a floor under your holdings and limits the risk of losing all your money in difficult periods. If the global financial crisis of 2008 or the post-Brexit vote market turmoil has taught us anything, it’s not to have all our financial eggs in one basket, as it leaves us too vulnerable.

Proper asset allocation involves investing in the main asset classes: equities (shares); bonds (loans to companies or governments); commercial property (shops, offices and industrial buildings); alongside cash.

Some people add in commodities (such as crude oil, metals, natural gas and agricultural products). Further diversification can be achieved through exposure to a variety of sectors and regions of the world.

Good starting point

When setting up portfolios, look at the Wealth Management Association’s (WMA’s) private investor indices. The WMA represents the UK’s stock brokers and private client investment managers.

Its five indices are designed to be a ‘talking point’ for investors when discussing the performance of their portfolios with their advisory stockbroker or wealth manager. They won’t be perfect for everyone. In fact, they have come under some criticism for not including corporate bonds (loans to companies), as well as gilts (loans to government).

But if you don’t want to pay for advice, we think they make a good starting point and guide to the sort of asset allocation you need in a portfolio. The current asset allocation percentages for the balanced and income indices are shown in table below.

Wealth Management Association private invesotr indicies: balanced and income

Asset Balanced index* (%) Income index** (%) Underlying asset index
UK Shares 35 35 FTSE All-Share index
International shares 30 17.5 FTSE All-World Ex-UK index
Bonds 17.5 27.5 FTSE Gilts All-Stocks index
Cash 5 5 7-day Libor -1%
Commerical property 5 5 FTSE All-UK Property index
Hedge funds/alternatives 7.5 10 WMA custom hedge index
Total 100 100  

Notes: *For invesotrs who want to draw income immediately, but preserve and grow capital. ** Balanced investing is for investors with at least a five-year timescale and an appetite for risk.

Tailored approach

Every wealth manager and independent financial adviser will give you a slightly different asset allocation, depending on your individual goals and attitude to risk as well as their own view on the sweet spots in the financial markets.

If you want to pay for this expert advice, it’s a valid approach that suits many people. However, if you want to learn about investing and create a DIY port- folio from scratch, Moneywise can show you some simple ways to get started. We’ve put together starter core portfolios for beginner investors with a range of goals. It’s probably best to drip-feed your money into these rather than invest a lump sum.

Our starter portfolios incorporate a few key features. These are:

  • The broadest possible coverage in terms of the number of assets held by the funds
  • The cheapest possible cost, in the form of the ongoing charges figure on the funds
  • The simplest structure in terms of the number of funds held in each portfolio.


Moneywise starter income booster portfolio (six funds)

This is a portfolio for someone who wants to invest to boost their income, and has a long time scale – for example, five to 10 years – and can therefore take more risk.





The two passive funds we have selected as core holdings give exposure to higher-income UK shares and global bonds. We’ve included four active funds in the satellite section to give a good spread of income sources, and added in overseas equities via the Artemis fund and a bit of active UK income and bond diversification, plus property via the F&C fund.

Adrian Lowcock, head of investing at AXA Wealth, says: “Actively managed funds tend to suit income, as the manager can concentrate on companies with good dividend track records but also avoid the traps: companies with a high yield but a poor outlook. Commercial property provides a good alternative income source, which is important for long-term income returns.”

Look out for our at-retirement and long-term growth portfolios in the September issue of Moneywise. To read more on the First 50 Funds selected for these portfolios, visit our funds homepage.


Moneywise starter growth portfolio (four funds)

This provides an excellent core from which to build your portfolio for long-term cautious growth (over at least 10 years) in just four funds. You could start with the core passive funds and then add in the active satellite funds once you feel ready.





The Fidelity fund is a good one to start a portfolio with because it tracks the share performance of companies from more than 12 developed countries.

The BlackRock fund gives you access to diversified global corporate bonds. This is a good starting point for accessing bonds, and it will help diversify from more volatile equities.

The actively managed Lindsell Train is a concentrated portfolio of between 20 and 35 companies, but the manager has a long-term focus that will be good for new investors. Jupiter Strategic Bond is a go-anywhere bond fund seeking the best fixed-income opportunities in the world.

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