DIY investor toolkit: ready-made portfolios to buy and hold

do-it-yourself-investors-toolkit

Building your own portfolio takes time and effort, which can prove a bit daunting for some first-time investors. There are, however, shortcut options for those who would prefer a more hands-off approach - outsourcing the decision-making about what to hold.

One option is a multi-asset fund, which will split your money across a mix of different assets, but mainly buy shares, bonds and property. Some may also have a small amount of exposure to alternative assets, such as gold.

The fund manager may adjust the balance between the different asset classes from time to time, if market conditions change significantly or one type of asset has performed much better than another.

These assets tend to perform differently from each other in different market conditions, which will help your portfolio avoid large fluctuations in overall value.

But investors are spoilt for choice, with hundreds of funds being touted as 'one-stop shop' solutions. Below, Money Observer runs the rule over the different approaches.

TRADITIONAL MULTI-ASSET FUNDS

Broadly speaking there are two different types of strategies. Some multi-asset funds directly invest in shares and bonds, while others, known as 'multi-manager' or 'funds of funds', buy units in other funds.

Be aware that the amount you pay to buy a multi-manager fund is significantly higher than buying a fund that invests directly into the underlying assets. Ongoing charge figures are usually north of 1.5 per cent, versus 1 per cent for single manager funds.

Some funds invest mainly in shares, which can lose value, while others primarily target capital preservation through a greater mix of assets. It is therefore important to assess how much risk you want to take before selecting a particular fund.

Money Observer has 21 multi-asset Rated Funds, which are divided between 10 lower-risk selections and 11 higher-risk choices.

PASSIVE MULTI-ASSET FUNDS

Tracker multi-asset funds, which buy baskets of different index-tracking funds, are much cheaper to buy than those that buy actively managed funds.

The Vanguard LifeStrategy fund range, which costs 0.24 per cent, is popular with financial advisers. Each fund holds a different amount in shares, ranging from 20 per cent to 100 per cent. The remaining exposure in each case mainly tracks bond indices.

Fidelity and Architas also have multi-asset tracker fund ranges.

READY-MADE PORTFOLIOS OFFERED BY BROKERS

Another option is consider ready-made portfolios offered by brokers. Some will ask you a series of questions to assess your risk profile and then suggest the fund that may be most appropriate.

Other brokers, including Trustnet Direct, have portfolios for specific situations, including a 'school fee planner' and 'retirement booster'.

Money Observer also runs a range of 12 model portfolios catering for different risk profiles and time horizons. These are available on the website of our sister company Interactive Investor at £10 per portfolio.

Information detailing the ready-made portfolio options offered by other brokers can be found here.


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