ISA tips: how to invest £10,000, £50,000 and £100,000

The same investment principles apply no matter how much you have to invest. A portfolio needs to be balanced across a range of assets, match your risk appetite and be flexible enough to take advantage of opportunities as they arise. However, how that is achieved may vary depending on the size of your portfolio.  

• Invest with ii: Open a Stocks & Shares ISA | ISA Investment Ideas | Transfer a Stocks & Shares ISA

The broad allocation for a medium-risk investor with a time horizon of five years or more does not change for a portfolio of £10,000, £50,000 or £100,000. Tony Yousefian, portfolio manager at Beckett Asset Management, suggests aiming for a portfolio comprising approximately 60% equities, 25% bonds and around 15% in property. This chimes with products such as the Vanguard LifeStrategy funds, which put 60% in stock market investments and the remainder in bonds.

Within these broad categories, investors then need to focus on diversification within each asset class. Nick Wood, head of fund research at Quilter Cheviot, says: “You'll find that most professional investors will focus on having balance in their portfolio. This will likely be by asset class, geographical region, and investment style, with diversification providing a less volatile return profile.”

There are different ways to do this. The smaller the amount you’re investing, the more you are likely to get this all in one place – perhaps from a single global fund, or a multi-manager option. For larger pots, investors can afford to be more targeted, taking exposure to individual funds. This may also give you the flexibility to add some spice round the edges. If you have £100,000, you can afford to risk £5,000 on that AI-focused fund. But if it’s half your savings, it’s better not to.

A £10,000 portfolio

With a £10,000 investment, the chances are that you want this to grow as much as possible without any scary losses. Equally, you’re more likely to be new to investment. The worst thing you can do is take too much risk, and then be panicked out of the market when it hits a bumpy patch.

Gavin Haynes, investment consultant at Fairview Investing, says: “For someone investing £10,000 into an ISA, managed funds can be a good way to ensure a well-diversified ready-made portfolio. A multi-asset fund will diversify stock market exposure with other lower-risk areas. Bonds are the key diversifier in most of these funds.”

There are active or passive options that do this. The arguments for and against active investment are lengthy, but the simplified version would be that passive tends to be cheaper and more straightforward. Active funds will be more expensive, but can swerve problems in the market in a way not open to passive funds.

The choice will be personal. Haynes adds: “One option can be to split your ISA between one passive and one active fund. You can then determine whether the chosen fund manager is earning their higher fee by providing a better return than the low-cost passive option.” His favoured multi-asset providers for a low-cost passive approach include Vanguard LifeStrategy and BlackRock MyMap fund ranges.

• What are the main asset classes to invest in an ISA?
• Funds that make solid core holdings in an ISA

For active, he likes the low-cost CT Universal MAP range of funds and the Royal Life Sustainable range of multi-asset funds managed by Mike Fox. “I also like the Troy Trojan fund for a core defensive multi-asset strategy,” he says.

The £50,000 portfolio

At £50,000, investors can start to take a more DIY-approach. Yousefian divides up the equity exposure with 25% in the UK, 35% in the US, 15% in Europe, 10% in Japan, 10% in the Far East and 5% in emerging markets. For bond exposure, he suggests two actively managed strategic bond funds, with 12.5% allocated to each and then a UK and global REIT will provide the properly exposure (with a 4.5% and 10.5% allocation respectively).

Investors can also be more tactical in where they use active and passive funds. Haynes says: “For areas such as US equities and government bonds, passive funds make a lot of sense, but for less-efficient markets such as smaller companies, emerging markets and corporate bonds then I believe there are good active managers that can add value.”

Wood agrees that active managers often have a tougher time in the US. “It may be a good idea to allocate part of that exposure to a cheaper passive option, tracking the S&P 500, for example. That doesn't mean that there are not good options to be had, though, and JPMorgan American Ord (LSE:JAM) is one such example, combining two managers of different styles, plus a smaller companies allocation within one investment.” 

Two low-cost options for gaining exposure to the S&P 500 index, both charging 0.07% a year, are Vanguard S&P 500 UCITS ETF (LSE:VUSD) and iShares Core S&P 500 ETF USD Dist (LSE:IDUS).

• Where pro fund buyers are investing their ISAs this year
• DIY Investor Diary: this rule takes the emotion out of investment decisions

Nevertheless, building your own portfolio will require more effort. Haynes says: “A lot changes over time, sectors, regions and fund managers that have performed well in the past can may begin to struggle or fall out of favour. It is important to review your ISA portfolio to ensure that potential under-performers are removed, and any new investment opportunities are introduced.”

The £100,000 portfolio

At this level, an investor can be more nuanced and strategic in their asset allocation and fund selection. This size of portfolio gives the flexibility to build more of a core and satellite portfolio. You may want to keep your diversified strategies as the core of your portfolio, while including single-strategy funds that bring an added dimension – perhaps in smaller companies, niche emerging markets, or specific sectors such as AI.

Haynes says it is important not to over-diversify: “A large collection of funds can prove counterproductive. As rule I believe that a portfolio of 10-15 funds is adequate. Portfolios with significantly more holdings show a lack of conviction and dilute the impact of your best ideas.”

For a UK allocation, Yousefian suggests a balance between a manager that can invest across the market and a dedicated smaller companies fund. The UK has strong recovery potential and Wood believes investors should make the most of it: “In the UK, two funds that pair well are Schroder Recovery and Liontrust UK Growth. Both funds have a very strong long-term track record, despite being managed with very different profiles, and correlation analysis shows that at present there is very low correlation between the two.”

• ISA ideas: out-of-form areas pros think will make a comeback
• Five AIM income stocks for your ISA in 2024

Wood adds: “Schroder Recovery is one of the few pure value managers in the UK, with a track record of managing in the same way counted in decades...Of late, the team has found more opportunities in smaller and mid cap companies, and has a meaningful bias down the cap scale versus the index today.”

For the US, Yousefian recommends 10% in a S&P 500 tracker, balanced with a 5% allocation to a large-cap US fund and 6% allocation to a smaller capitalisation fund. The Artemis US Smaller Companies fund and the Premier Miton US Opportunities fund feature on interactive investor’s Super 60 list. A similar small cap/large cap split should be applied across other regions, he says.

For the Japan allocation, Yousefian says investors could consider balancing the JPMorgan Japanese Ord (LSE:JFJ) investment trust with the Nomura Fds Japan Strategic Value. For Asia, he recommends the Fidelity Asia Pacific Opps fund, and for emerging markets, the Redwheel Next Generation Emerging Markets fund.