‘I’m 31 with £50k in Premium Bonds and £25k in US tech stocks – am I taking enough risks?’

I would love to know whether you think I am set up to maximise growth over the next decade or so and if I should be taking some more risks. 

I also hold £50k in Premium Bonds which I am planning to use as a deposit for a house purchase in the next 18 months.

Appreciate your thoughts!

– P, Williams

Victoria says:

It is brilliant to see you taking control of your financial future at such a young age.

Remaining invested over the long run is the best way to set yourself up for success which is exactly what you’re doing. You’re massively ahead of the curve with over £25,000 for stock picking, more than £38,000 in funds and ETFs and £50,000 in Premium Bonds ready to use on a house deposit.

Plus, I love how you’ve set up regular investing – a fantastic way to smooth out the market’s natural volatility and spare you the burden of having to time the market.

Given you’re only in your early 30s and have no short-term plans to use the investment pot, I’d agree focusing on growth and taking some risks is the right approach. Looking at your stocks portfolio, I notice your heavy weighting towards the tech sector, which, bar the blip last year, has been a fantastic source of growth and therefore aligns with your goals.

Given your penchant for “mega cap” tech, I’m curious about Apple’s notable absence? It’s largely viewed as one of the most solid names in the sector, so perhaps that’s one more to add, particularly given that the share price is down almost 10pc in August, which could provide you with an attractive entry point.

 I can understand why you have focused on tech names for growth, but you should be wary of being too concentrated in just one sector. Even though the leading tech companies have different business models, the market lumps them together and when one falls, they generally all fall, which means that you may not be as diversified as you think.

Tech isn’t the only way of adding growth to a portfolio. I suggest you look at some “steady growers” too, such as consumer shares. While they won’t get the headlines like racy tech shares, there’s a lot of appeal in owning companies that can reliably increase profits, and also return a healthy amount back to shareholders with dividends.

Terry Smith is the leading UK fund manager in this “quality growth” space, as it’s known. You could simply buy some units in Fundsmith Equity, his flagship fund, which is suitably differentiated to the small holding you already have in Smithson Investment Trust, which focuses on smaller and mid-sized companies. While there’s always room for some smaller companies, it is the flagship fund that has consistently delivered.

Or you could pick out some individual shares. You might want to look at French luxury group LVMH, which has increased revenue by 14pc annually on average over the past three years, or Procter & Gamble in the US, where sales are growing at 5pc a year or both.

Concerns about economic growth in China mean LVMH shares are flat over six months, which could present a great buying opportunity for a company that owns a unique set of brands, including Louis Vuitton and Dior. In the UK you could also look at Diageo and Unilever.

As you mention, you’re mainly invested in the UK and the US with the latter, in particular, aligning with your aims, as the go-to destination for growth stock winners over the past decade. Given your desire to take some risks and your lengthy investment horizon, I’d argue you could widen your geographical reach by upping your allocation to emerging markets, which have the potential to outperform over the long-term.

There’s no denying that China is currently in a tough spot, with its bumpier-than-expected recovery out of the pandemic. The unease this year has devalued emerging markets, but looking beyond the short-term noise, arguably this could provide you with a nice opportunity to be greedy while others are fearful.

JPMorgan Emerging Markets Trust currently trades at 7.5pc discount, so you’re getting large, listed shares such as TSMC, Tencent and Samsung at a bargain price. Performance is good over the long term, returning 25pc compared with 19pc for the average emerging market trust over five years, but has dropped off recently relative to similar funds, which could make now a good time to invest (in theory at least).

Another long-term growth area to consider is sustainable investing and climate change technologies.  An ETF I like is the iShares Global Clean Energy Ucits ETF. It owns 100 companies involved in clean energy, from utilities firms to wind turbine and solar panel manufacturers. It’s a great way of getting exposure to the future of energy, without overpaying for speculative companies.

Following a tough year for the ETF (its down nearly 25pc), the price-to-earnings ratio of its holdings is just 14.5, according to BlackRock’s own figures, which is below the 18 of a global markets tracker. That valuation could look attractive given the essential role that these companies will have in the energy transition over your investment time horizon, although there may well be bumps along the way.

Finally, there’s nothing wrong with having some fun with Premium Bonds, especially now that the prize fund has risen to 24-year highs. Chances of winning a prize also increased to an estimated 181 Premium Bonds prizes of £50,000 given in September, up from 154 in August. You might get lucky, but you might not. Perhaps after the recent string of interest rate increases, you might also want to compare some easy-access savings accounts too.

Thanks so much for writing in. With a long stretch of investment years ahead, solid foundations and the added benefit of compounding, it looks like you’ve stood yourself in good stead already, providing you with the best possible chance of success and a comfortable retirement, when it eventually comes.

Victoria is head of investment at interactive investor.  Her columns should not be taken as advice, or as a personal recommendation, but as a starting point for readers to undertake their own further research.