‘Are Lloyds and Royal Mail suitable for my granddaughter?’

Investing on behalf of your grandchildren is a powerful financial gift. Putting aside money each year from their birth allows 18 years for returns to compound and develop into a considerable pot, all free from the tax man if in a Junior Isa.

But buying the right stocks or funds has a large impact on the final sum, as Richard Halling, 85, from Buckinghamshire, has found.

He has been investing £500 a year for his granddaughter, now 16, to help set her up financially when she becomes an adult.

The portfolio, featuring a small selection of British shares and two funds, is now worth £12,300, but Mr Halling’s returns lag those he would have made had he simply invested in a stock market tracker fund.

Regular annual investments of £ 500 over the past 16 years into a global tracker would have grown the pot to £24,000, while a British stock market tracker would have delivered £15,000.

“I’ve followed newspaper tips and looked at recommendations from my fund shop, but I think the portfolio can be improved before I hand over control in a couple of years,” he said.

Mr Halling’s biggest stock positions are in brick maker Michelmersh, Royal Mail, and software firm Oxford Metrics. He also owns Lloyds and property investor Assura, as well as two funds, HL Select Global Growth and BlackRock Income and Growth, alongside £5,000 in cash from a fund sale. “Is this the right balance for my granddaughter? She might want to use it for a house deposit at one point or keep saving and adding to it. She is sensible and will not waste it,” he said.

Patrick Thomas Investment director at Canaccord Genuity

The main aim should be to grow this portfolio as much as possible over a long period as Mr Halling’s granddaughter is still at the beginning of her investment journey. Investing in individual shares for a portfolio this size does not make sense and is too risky. Funds, which contain lots of stocks, are much more cost effective and spread risk better.

The first step should be to sell all the individual stock positions and then buy some funds to replace them.

Mr Halling should buy funds that are focused on growth, rather than paying an income, as his granddaughter will most likely want to use the money well into the future, rather than to fund her lifestyle today.

He could buy Monks Investment Trust, a well- diversified global stocks fund that charges just 0.45pc. Fundsmith Equity, which also invests globally but charges more, is another great option. The remaining third of the portfolio should be invested in either Scottish Mortgage, which buys fast-growing companies, or Polar Capital Technology Trust.

Scottish Mortgage and Monks are run by the same fund group, Baillie Gifford, and there is some crossover between their holdings, such as Amazon. However, they can be owned together because they have different risk profiles – the former is riskier and more volatile than the latter.

John Moore

Senior investment manager at Brewin Dolphin Before making changes, Mr Halling should have a conversation with his granddaughter about investing and what is important to her. They should establish an understanding of what can be achieved, it could form the basis of future conversations about the investment strategy for the pot. The portfolio as it stands is heavily biased towards British stocks. Selling them, but keeping the BlackRock and Hargreaves Lansdown funds, would raise the cash pile to almost £10,000. He could invest this in three new funds, taking the total to a manageable five.

The Pictet Global Environmental Opportunities fund buys firms that are helping reduce our reliance on fossil fuels, while the Worldwide Healthcare Trust offers exposure to long- term medical trends. Scottish Mortgage investment trust would be another strong option.

The Mercantile Investment Trust buys British stocks, while Pacific Assets Trust searches for growth from Asia companies. All are worthy of discussing and including in Mr Halling’s granddaughter’s portfolio.

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