‘How do I invest my £80,000 house deposit?’
Our reader wants to know how to protect his Isa for the next three years, he tells Adam Williams
Charlie May is 26 and dreams of buying a property in the next three years, but there is one obstacle that could get in his way – high inflation.
Mr May, who works in finance, has an Isa with £40,000 deposited, and has saved the full £20,000 permitted in the current tax year. He also has £40,000 held in a general investment account. He is keen to ensure tax and investing fees are minimised.
His biggest fear is his cash being whittled away by sky-high inflation.
As well as growing his savings so he can purchase a property in the coming years, he also wants an investment strategy which is in line with his ethical and sustainable preferences.
“I want to be in a position where I can purchase a house in the next few years,” he said. “And if there is a downturn I want to make sure my portfolio is secure.”
About a third of Mr May’s portfolio is held in British stocks, and he is concerned that he is overexposed to domestic companies. He has already taken steps to revamp his portfolio, but wants advice on where to invest next.
My portfolio was all over the shop,” he said. “Now I want to focus on renewables and sustainability – so much money is being thrown at it.”
Emma Deuchars, Investment manager at Bestinvest
Mr May is a knowledgeable investor, who wants his investments to be as tax efficient as possible, grow comfortably in excess of inflation and provide the basis for a property deposit in two to three years’ time.
While this is a relatively short timeline for someone to invest their money for a specific goal, Mr May has healthy cash savings he can tap into before needing to draw down on his portfolio. He has a high capacity for loss and is flexible on when he wants to access his investments.
My first suggestion is for him to sell his holdings in volatile fixed-interest funds invested in bonds with low credit ratings, and some US technology stocks.
My next recommendation is a portfolio of 20 funds and investment companies across both his Isa and general investment account, which meets the assets to be steered towards the general investment account, whilst the income tax advantages of the Isa wrapper are utilised to hold purchases of more income driven funds such as infrastructure investment companies and Asia Pacific funds.
Rob Burgeman Investment manager at wealth manager RBC Brewin Dolphin
Having one third of the portfolio invested in the UK, to my mind, is a little high. Yes, the UK has done well over the last year, but this reflects the structure of the FTSE 100, with large weightings to oil and gas, pharmaceuticals, banks and mining.
These weightings mean that the UK is not an especially sustainable or green market. There are some UK specific and international sustainable funds. On the face of it, these look to have performed poorly but this is entirely down to the sectors which they exclude being precisely the sectors which have performed so well over the last year or so. The interest rate environment has meant that many nascent technologies and companies that are years away from being profitable and cash generative, have seen sharp falls in their share prices over the last year. So, many investments in areas like artificial intelligence, energy transition and environmental impact have had a tough time over the last year. That said, these are all areas that are likely to see substantial inflows over the years ahead as the world moves to a more carbon neutral and sustainable footing.
Legal & General have a range of thematic “exchange-traded” funds, allowing investors to be quite targeted in the themes and trends that they are looking for and in a way which greatly reduces the risks of investing in the shares of one or two individual companies.
Schroder Global Energy Transition Fund invests in the shares of companies that the manager believes are associated with the global transition towards a lower carbon source of energy. It is up 32.2pc in the last year.
Pictet Global Environmental Opportunities is another looking to invest in companies making a positive environmental impact. The shares rose by 11pc over the last year.
Finally, the L&G Hydrogen Economy fund is playing a very specific theme. Whether hydrogen is the future of the world’s energy demands is unclear, but this fund is one of the less risky ways of investing. It is down 33pc over the last two years, highlighting just how speculative its nature is.