‘Can I invest for both dividends and growth?’

Investing for income as well as growth is a difficult balancing act. But David Steer*, a 74-year- old pensioner from Suffolk, has designed his portfolio to strike a balance between the two.

“My portfolio is worth around £181,000 and has 33 holdings across various funds, investment trusts and stocks,” he said. “My strategy is mixed, but I would never invest in something unless it paid some sort of dividend.

“I am part of a share club, where I have been the treasurer for more than a decade. That’s where I get most of my ideas, as well as following the press.”

Mr Steer described his risk appetite as medium and said he had an interest in the environmental impact of his investments.

He said he would like a view on the diversification of his portfolio and whether his money would be able to grow at the same rate as inflation as well as keep up its dividend payments.

Donald Brown

Investment manager at Brewin Dolphin, a wealth firm Mr Steer has many holdings in his portfolio, so at first sight it looks very diversified. But the underlying mix is less appealing: more than two fifths of his portfolio is in just four funds.

This means his returns are heavily skewed towards his largest commitments, while his other investments have much less impact on his money.

Mr Steer should look beneath the bonnet to find out what each of the funds invests in. Microsoft is among the largest holdings in several of his selections, including Rathbone Global Opportunities and Fundsmith Equity.

I would increase allocation to the funds that already offer him meaningful diversification, such as BB Healthcare Trust, and reduce some of the generalist funds with overlapping holdings, such as the Bankers and City of London investment trusts.

Compared with Mr Steer’s holdings in funds and trusts, his current spread of individual stocks is very limited, which means that they do not have much hope in moving the performance needle of the portfolio.

That said, we like cash- generative stocks that will compound strongly over time. Mr Steer’s holding in

Unilever fits this mould, as do the likes of drinks group Diageo and luxury goods company LVMH.

He should also consider including a tracker fund, such as the UBS S&P 500 Index fund, which mimics the performance of the American stock market and pays a yield of 1pc.

I would also suggest that he review how much risk he is prepared to accept. For example, his holding in the Diverse Income Trust pays a healthy income yield of 4pc, but Mr Steer should consider whether its underlying portfolio, which has more than a third of its assets in London’s riskier junior stock market, matches his appetite.

If he wants to invest more in renewable energy, I would highlight the Guinness Sustainable Energy fund, which invests in companies such as the Spanish electricity company Iberdrola and has returned 95pc in the past three years.

Andrew Parkes Wealth manager at Coutts, the bank

I am not sure Mr Steer’s portfolio truly matches the medium risk appetite that he describes. Traditionally, one would expect a multi-asset approach, especially as he is now retired.

For most investors this would mean a portfolio half invested in stocks, with the remainder in a combination of bonds and property.

For a more balanced approach, I would suggest a global multi-asset fund. They are cost- effective ways for investors to get exposure to all asset types.

The Baillie Gifford Managed fund would be a good option. It has almost a fifth of its portfolio invested in global bonds and has delivered returns of 24pc in the past three years.

We think Mr Steer’s stock picks generally look robust. With inflation so high, investing in companies that have strong pricing power is crucial. Holdings in the portfolio such as Unilever and United Utilities are a great example of consumer staples that stand to benefit from rising prices.

The portfolio also includes holdings in the defensive theme of healthcare, through the Fidelity Global Health Care fund and the BB Healthcare Trust, which should help its growth in the long run.