ISA ideas: funds and trusts for young, middle-aged and retired investors

It’s never too early - or late - to start your investment journey – but it’s a mistake to assume that the kind of fund that is likely to work well for a 20-something investor will also suit someone in their 70s. People’s financial obligations, investment goals and broad risk profiles vary hugely over the decades, and that means they need to look for funds appropriate to their stage of life.

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Of course, there can also be huge variation between individual situations and attitudes, but it is nonetheless useful to identify key issues to bear in mind at different ages, and the kind of funds or investment trusts that work particularly well in each context.

Younger investors

Young adults in their 20s and 30s have many decades over which their money can be put to work, grow and compound. So the most obvious choices for them might be exciting, future-facing, growth-focused investment opportunities that could face setbacks in the shorter term but could deliver big rewards in years to come.

However, while such an approach might work for those lucky enough to have inherited a nest egg or earn a meaty salary, and therefore in a position to put at least some money away for the long term, many others are in a more precarious situation, says Edward Allen, investment director at Tyndall Investment Management.

“Most young adults investing for the first time face the greatest uncertainty of outcome, with funds that are likely small but very significant to their life decisions: do I buy a house? If so, when? Can I afford the time to study/work toward/look for the dream job? Can I afford to travel?” he observes.

At the same time, they have little investment experience to draw on and Allen says “many (but by no means all) will be risk-hungry”, so they need to think carefully about what the money is likely to be needed for and when.

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Tyndall recommends careful consideration of what they’re likely to need to keep in cash, before choosing appropriate funds. “I would advocate liquidity, so you can easily get out of whatever you invest in if plans change, and a level of risk that fits with your time horizon,” he says.

Further, given that many may feel they have more interesting things to do than poring over their portfolio on a regular basis, a relatively low-maintenance option could make sense.

Alastair Laing, of CG Asset Management, suggests taking that tack. “For a younger investor, a single, low-cost and globally diversified equity fund makes a lot of sense, as it is an easy-to-manage ‘one-stop shop’ that can easily be built up through a monthly investment from salary,” he argues.

If you’re investing into a workplace defined contribution pension, that’s probably exactly where your money is going, and it’s a great, tax-efficient solution for the very long term.

If you can afford to set up your own ISA as well, with a view to a shorter time horizon than retirement, then Laing recommends the Vanguard FTSE All-World UCITS ETF (LSE:VWRD) as a low-cost, low-maintenance passive choice.

“For those with a higher risk tolerance, small-cap companies tend to outperform larger companies over the long term, so the Vanguard Global Small-Cap Index could be an option, although be prepared for a wild ride!” he adds.

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At investment consultancy Square Mile, research director John Monaghan offers an actively managed idea as an alternative route.

He suggests Royal London Sustainable World Trust, which has a sustainable investment angle likely to resonate with many younger investors worried about the state of the world they will inherit. The fund’s holdings are selected specifically on the basis of sustainability and “net positive benefit they have on society”. As Monaghan observes, that approach has paid off in terms of its strong long-term track record.

If you’re keen to chance your arm with a long-term growth story that could prove a winner in due course, Charlotte Cuthbertson, co-manager of the multi-manager investment trust MIGO Opportunities Trust Ord (LSE:MIGO), suggests specialist trusts such as Seraphim Space Investment Trust Ord (LSE:SSIT) (space tech) or the private equity-focused Schiehallion Fund Ord (LSE:MNTN) or Chrysalis Investments Limited Ord (LSE:CHRY). However, bear in mind due to such funds being adventurous they should form only small parts of portfolios as satellite holdings. 

Mid-life investing

Investors in their 40s and 50s typically have more income and pension security, but also often greater financial complexity and larger commitments in terms of children, school or university fees, mortgage, car and so on.

Against that, says Allen, the uncertainties of youth “tend to be toned down in middle age, with more ‘known unknowns’, such as: will I change job? Do I support my child’s education? How much can I afford to set aside for retirement?”

Pension saving is likely to become more of a priority, as the years tick away. “A global equity fund continues to make sense for a significant portion of savings,” Laing argues; but this could be counterbalanced by lower-risk holdings to help to mitigate the impact of major stock market trauma.

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Laing suggests the addition of infrastructure investment trusts such as International Public Partnerships Ord (LSE:INPP), which invests in a broad range of infrastructure assets predominantly in the UK. “Infrastructure assets have historically been slightly lower-returning, but less volatile than a portfolio of equities,” he explains.

Monaghan likes M&G Global Dividend as a global equity fund with some exposure to emerging markets. “The manager follows a thoughtfully constructed investment process and believes that an obligation to grow dividends exerts a discipline on company management,” he comments.

As a counterpoint, he picks out Personal Assets Ord (LSE:PNL) trust as a simple multi-asset solution, which could be used alongside or instead of a global equity fund to provide capital growth and inflation protection. “Over the long term, it has provided returns significantly ahead of equities, with a much lower level of inflation.” 

Retirement

Retirees have much greater clarity around income, assets and likely outgoings, with expenses such as mortgages and childcare usually well behind them. But they still face many unknown factors  – particularly in terms of health and life expectancy, given that retirement could last 30 years or more.

Recent retirees should stick with a long-term time horizon, and avoid the use of age-profiling funds that automatically switch into government bonds over time, argues Allen. “They are at best blunt instruments, and at worst downright dangerous,” he warns.

An equity-led portfolio is a good way to maintain the value of your assets over the long term, he adds, with “natural” income or regular capital withdrawals as a means of providing the necessary cash flow.

One example suggested by Monaghan is IFSL Evenlode Global Income fund, which “invests in high-quality, growing, dividend-paying companies and is likely to have more of a defensive profile than the broader global equity market”.

A stable investment trust with reliable income such as Law Debenture Corporation Ord (LSE:LWDB) or City of London Ord (LSE:CTY) would be another attractive equity-oriented choice, says Cuthbertson.

As a slightly lower-risk alternative, Monaghan likes the Waverton Multi-Asset Income fund, which comprises a mix of equities, fixed income and alternatives to produce natural income plus some capital growth.

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Risk can be further reduced by taking a more conservative multi-asset approach that will “deliver returns ahead of inflation while minimising drawdown”, Laing says. Popular examples include Troy Trojan fund, WS Ruffer Absolute Return and CG Absolute Return.

Finally, it’s worth mentioning the multi-manager CT Global Managed Portfolio Trust, which is specifically structured to span the different requirements and types of return that an investor is likely to need over the course of their life.

As manager Peter Hewitt explains, the trust comprises two separate portfolios of investment trusts: CT Global Managed Portfolio Growth Ord (LSE:CMPG) (producing capital returns only), and CT Global Managed Portfolio Income Ord (LSE:CMPI) (producing a high and growing income with some capital growth).

“The Growth portfolio is ideal for younger people – children or younger adults who don’t need funds in the short term but desire long-term capital growth,” he explains.

“The Income portfolio has an older share register profile, and for them current and growing income is more important but there is an element of capital growth as well.”

Importantly, there is an annual conversion facility, when investors can switch between the two portfolios at net asset value.