With spring now in full season and the clocks moved to British Summer Time, it’s the perfect time to take a fresh look at your finances and build an investment pot for later in life. This article tells you how to build your ISA the low-cost, easy way.

Our exercise is not solely aimed at beginners. There’s plenty of people who are actively trading stocks to make quick profits, but who don’t have a solid portfolio designed to be held for the mid to long-term and which sits as the backbone to their shorter-term investment activity.

You may think the latter is addressed by having a pension, but we believe there’s merit in also having an ISA to build up money for specific goals like funding a house deposit or a child’s education - ie. events where you probably need the cash long before retirement age.

Knowing what to put in an ISA can be difficult unless you regularly follow the stock markets and/or understand financial valuation techniques. But even if you are comfortable picking stocks or funds, do you have the time to actively manage portfolios? With this in mind, we’ve opted to focus on exchange-traded products (ETFs) and investment trusts as the easiest and lowest-cost ways of getting exposure to a diverse range of underlying assets which shouldn’t require you to regularly make portfolio amendments (unless there’s a significant event that alters the direction of the market). You buy ETFs and investment trusts in exactly the same way as normal company shares.

Towards the end of the article we also explore the growing number of ‘ready-made’ ISAs where financial service companies offer pre-selected portfolios, generally based on your risk appetite and investment time horizon. We talk to the likes of The Share Centre, Rplan, Nutmeg and Architas about their propositions.

Collective investments enable you to access a whole market sector, region, theme, commodity basket or fixed income strategy in one simple trade. Traditional mutual funds - OEICs (open-ended investment companies) and unit trusts - often come with high charges and are priced daily at a level which the investor only learns after confirmation of their trade. By comparison ETFs and investment trusts (sometimes called closed-ended funds) tend to have much lower costs. BlackRock recently slashed fees on its flagship iShares FTSE 100 ETF (ISF) from 0.4% to just 0.07%. Both ETFs and investment trusts are continuously quoted on the stock market in the same way as any other share, so you can quickly get the latest price by looking at sites such as Moneyam.com or Londonstockexchange.com.

Portfolio preparation

Establishing your attitude to risk is an important step in the investment decision-making process. It is the first thing a financial adviser will try and establish before building a portfolio and should also be the first port of call for do-it-yourself investors.

In this article we look at three different investment scenarios and come up with portfolio ideas for each - please note these are the stepping stones for you to begin your own research. In no way are we giving financial advice. They are all risk-based assets and should make up only part of balanced portfolios appropriately designed for an investor’s risk appetite.

Step one

Let’s consider risk tolerance from an investor’s standpoint. Investment time horizon and ability to withstand losses are the two key components. In general, investors with longer time horizons can expose themselves to more volatile asset classes because they will not need to access the funds for many years to come, and their value.

Attitude to risk can override this, nonetheless. How would an investor feel if their life savings declined by half in a matter of months? This can be unpalatable to even very wealthy investors with long time horizons.

Ability to withstand risk is also determined by wealth and in particular income. An investor with a stable job and high disposable income will have the ability to rebuild wealth in the event their investments sour. In contrast, a pensioner approaching retirement with no other income - and the need to draw down some or all of their assets in the near future - would tend to seek assets with more stable prices.

Step two

Then there is the question of asset risk itself, which is a debated topic. Modern portfolio theory defines asset risk as volatility and asserts that, in general, higher risk equals higher returns. But this may not make sense in the real world: jumping out of a high tree is risky; it isn’t likely to make you richer.

Other measures of risk focus on experience and expected future draw-downs on different assets and asset classes. Here, we look at a set of investments - specifically investment trusts and exchange-traded funds - which might appeal to investors with differing investment objectives. Shares typically focuses on investments that can be traded on exchanges, and these all fit the bill.

Other asset classes including open-ended investment companies (OIECs), individual stocks, bonds, cash and alternative assets are also important. All of these asset classes should be considered by investors seeking to build a portfolio appropriate to their capacity and willingness to take risk. Many ETFs and investment trusts, it must be noted, do provide exposure to bonds and alternative assets. Investors in any doubt should consult a financial adviser.

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Regular investing and dividend reinvestment schemes

Some stockbrokers offer a regular investment service which enables you to make monthly payments into your ISA instead of a large lump sum, essentially a more affordable way of building a pot of wealth for the future. You choose which products you want, how much you want to invest and the ISA provider does the rest.

Regular investing is much cheaper than ad hoc dealing because ISA providers collect customers’ requests and make bulk trades. It costs as low as £1.50 per trade and there is usually a minimum monthly investment of between £20 and £50. In the vast majority of cases you’ll still need to pay the stockbroker’s administration charge, although it is worth noting that someone platforms like AJ Bell Youinvest don’t charge anything at all to hold ETFs or investment trusts in an ISA; or TD Direct which waives its account fees if you have an ISA balance of £5,100 or more; or set up a monthly regular investing scheme.

By feeding your money into investment trusts and ETFs at regular intervals you can take advantage of ‘pound cost averaging’ - essentially balancing out price highs and lows over a period of time. You invest the same amount of money each month and when the price is high you get fewer units for your money and when it’s low you get more units for your money. This reduces the risk of getting the timing wrong.

Making regular investments will hopefully build up to a sizeable amount over time because you benefit from compounding. You can supercharge your return on investment by automatically reinvesting the income you receive from your investment trusts and ETFs.

Andy Parsons, head of investment research and advisory services at The Share Centre, says compounding returns and reinvesting dividends are two of the quickest and most efficient methods for making investments work harder and gain in value. ‘Compound interest is the continual increase in value of not only the original investment amount, but also the interest earned on that investment. It can be seen as earning interest on interest.

‘Having appreciated the benefits of compounding, consideration should also be given to reinvesting dividends. Unless personal circumstances dictate that income is immediately required, we would always recommend that dividends received are automatically reinvested, ensuring more of your wealth is working harder for you,’ he says.

The cost of reinvesting

Many stockbrokers offer an automatic dividend reinvestment service which costs between 0.5% and 2% up to a maximum of between £7.50 and £15. Some offer this service for shares, funds, ETFs and investment trusts while others restrict it to shares only.

If you opt for automatic dividend reinvestment then dividends will accumulate in your account and are automatically reinvested, usually when they reach £10 or more.

Reinvesting dividends or income can generate a much higher value for your investment than if you spent it and just take the capital gain. According to QuotedData, an investment trust research house, if you had invested in the City of London Investment Trust (CTY) over the past five years you would have made 54% without reinvesting dividends and 75% with dividends reinvested.

The simplest way to get dividend reinvestment from ETFs is to invest in accumulating as opposed to distributing ETFs. You won’t have to pay dealing commission because the reinvestment is carried out at the product level rather than by the broker. Both iShares Core FTSE 100 UCITS ETF (CUKX) and db X-trackers MSCI Emerging Markets Index UCITS ETF (XMEM) track total return indices which measure the performance of a group of stocks by assuming that all dividends are reinvested, as well as tracking the stocks’ price movements.

Some providers offer ETFs with accumulating and distributing versions - they often have an ‘acc’ or ‘dist’ at the end of their name. Funds with accumulating and distributing versions include the iShares MSCI Brazil UCITS ETF Acc (CBR1) and the db X-trackers Euro Stoxx 50 UCITS ETF (XESC).

Even if an ETF in your portfolio is a distributing product your broker can still reinvest the income, although you’ll have to pay the usual dividend reinvestment charge.

Lower risk, 5-10 year period

The following investment trusts and exchange-traded funds (ETFs) are intended to help generate ideas for someone who needs to access their funds within five or 10 years. Towards the end of this period you would likely hold most of your capital in cash but these lower risk options are intended to suit someone at the start of this period.

iShares MSCI World Minimum Volatility (MINV) £23.16

• TER: 0.3%

If you’re investing but need to draw on your capital within a short time frame then volatility is your enemy. Swings in the market or individual shares could intervene to wipe out any hard won gains just as you look to cash out.

The development of ETFs which aim to limit volatility is therefore a boon to people who find themselves in this position.

This ETF tracks the MSCI World Minimum Volatility index which includes a subset of stocks from MSCI World with the lowest absolute volatility of returns.

Top holdings include US consumer goods behemoth Johnson & Johnson (JNJ:NYSE), Japanese pharma company Takeda Pharmaceutical (4502:TYO) and fast food giant McDonald’s (MCD:NYSE).

Although these names might underperform in a bull market they equally should not be hit as hard if stocks in general are falling.

Unsurprisingly given the sector’s traditional defensive qualities, health care shares account for 18.2% of the underlying holdings. (TS)

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iShares Core £ Corporate Bond (SLXX) £140.85

• TER: 0.2%

Bonds are traditionally seen as lower risk than equities and would therefore be suited to someone looking to crystallise their investment portfolio in the short to medium-term.

Unlike the dividend attached to a share, the regular interest payments from bonds, known as coupons, are guaranteed unless a government or company goes into default.

Bondholders are also ahead of shareholders in the queue of creditors when a firm does go out of business. Investing directly in investment grade corporate bonds (those assessed to have a low risk of default) is difficult but it is possible to gain exposure to a basket of bonds through ETFs.

This product tracks the most liquid, sterling-denominated investment grade corporate bonds. It includes debt from issuers like UK bank Barclays (BARC), US pharmaceuticals firm Pfizer (PFE:NYSE) and retail conglomerate and owner of ASDA supermarkets in the UK, Walmart (WMT:NYSE). (TS)

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Witan Investment Trust (WTAN) 808.5p

• DIVIDEND YIELD: 1.9%

• NAV: 806.52p

• Premium to NAV: 0.3%

• Ongoing charges: 0.8%

An investor who cannot afford to take on too much risk, yet still requires the extra portfolio oomph that comes with a global growth mandate, might put money to work with the Witan Investment Trust (WTAN).

Launched in 1909, Witan has successfully used a multi-manager approach for over a decade, employing a number of specialist fund managers to run different portions of the portfolio in order to smooth out volatility.

Investing in global equities for long-term growth of income and capital, Witan offers diversification by geographical region, industry sector and individual stock names.

It has delivered a 187% share price total return and a 152.8% rise in net asset value over the past 10 years, both metrics ahead of its composite benchmark. Significantly, Witan also serves to provide a reliable and growing income stream.

Results for calendar 2014 (11 Mar ‘15) included news of a 6.9% hike in the dividend to 15.4p, 6.4% ahead of the rate of inflation and marking a 40th consecutive year of increased dividends.

As at end-February, the biggest holdings included household, quality, dividend-paying names ranging from Reed Elsevier (REL) and Diageo (DGE) to technology heavyweight Sage (SGE). (JC)

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Edinburgh Investment Trust (EDIN) 674p

• DIVIDEND YIELD: 3.5%

• NAV: 696.72p

• Discount to NAV: -3.3%

• Ongoing charges: 0.68%

Managed by Mark Barnett, successor to Neil Woodford at Invesco Perpetual, Edinburgh Investment Trust (EDIN) is a solid pick for investors looking to allocate part of their portfolio to the UK equity income space.

Barnett’s investment record compares favourably to Woodford’s across short and longer-term time horizons and Edinburgh has also kicked off 2015 in decent form. Its year-to-date net asset value return is 8.6% versus 6.4% on its FTSE All-Share benchmark.

Tobacco and healthcare stocks feature heavily in Barnett’s fund. US-based Reynolds American (RAI:NYSE), whose brands include Camel, Pall Mall and Winston is the fund’s biggest position.

Anglo-Swedish pharmaceuticals giant AstraZenca (AZN) also features prominently, though Barnett has been selling down the position since the start of the year.

There is a lower than benchmark weighting in natural resources stocks and energy companies. Edinburgh has a 0.68% ongoing charge. The total charge was 1.1% in the year to end March 2014. (WC)

Low-to-medium risk, 10+ year period

These suggested investments are aimed at someone with more than 10 years until they need to realise the value in their portfolio but who still wants to pursue a conservative approach. The selected ETFs both have a bias towards income to reflect this profile.

SPDR UK DIVIDEND ARISTOCRAT (UKDV) £13.11

• TER: 0.3%

A conservative investor with a long-term investment horizon will be looking for their equity exposure to come with income attached and this ETF tracks 30 high-yielding UK companies that have held or increased their pay-out for at least 10 consecutive years. Long-term growth in the dividend is a good arbiter of both earnings quality and share price performance. In order to grow a dividend year after year a company has to consistently generate the necessary cash flow and display financial discipline. Existing constituents are removed from this ETF if the dividend is cancelled, their yield is higher than 10% or they no longer sit in the top 30. The top holdings include defence firm BAE Systems (BA.), Imperial Tobacco (IMT) and pharma giant GlaxoSmithKline (GSK). The average market cap of its constituent companies is £20.7 billion reflecting its focus on blue chip companies. (TS)

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WisdomTree Europe Equity Income (EEI) £10.48

• TER: 0.29%

An alternative option for income investors is WisdomTree Europe Equity Income (EEI) which unlike many income-focused equity ETFs does not base its selection criteria on dividend track record. This may be slightly riskier, as there’s probably a greater chance of these pay-outs being cut, but it means there’s a longer a list of companies which can be included. The US version of this ETF, for example, can include the likes of Apple (AAPL:NDQ) which has not yet had the opportunity to build up the kind of dividend record required to make it eligible for other yield-chasing ETFs. Companies are selected for the underlying index from WisdomTree’s universe of European stocks with only the highest 30% by dividend yield making the cut. Companies are not weighted by market cap so arguably there is greater diversification built into the product. (TS)

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Diverse Income Trust (DIVI) 85p

• NAV: 82.96p

• Dividend yield: 2.8%

• Premium to NAV: 2.5%

• Ongoing charges: 1.33%

For a growth-focused investor with a longer term horizon, the abundant upside on offer from small caps combined with some downside protection in the form of dividends and market cap diversity looks sensible.

Step forwards the Diverse Income Trust (DIVI), managed by smaller companies supporter Gervais Williams and Miton (MGR:AIM) colleague Martin Turner.

The investment trust seeks to provide an attractive level of dividends, coupled with long-term capital growth, by putting money to work across a wide variety of market caps - FTSE 100 stocks may be included - but with a long-term bias towards small and mid-sized companies. More than 36% of the book was invested in AIM stocks at last count, for instance.

Harvesting dividend growth across the portfolio of anywhere between 80 and 140 investments, with names ranging from budget footwear firm Shoe Zone (SHOE:AIM) to Fairpoint (FRP:AIM) and Provident Financial (PFG), the quarterly plans to grow the shareholder reward.

The managers believe the best opportunities are still to be found outside the FTSE 350, where valuations are lower, dividend cover typically higher and therefore the scope for dividend growth is more attractive. (JC)

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Strategic Equity Capital (SEC) 188p

• Dividend yield: 0.4%

• NAV: 201.46p

• Discount to NAV: 6.7%

• Ongoing charges: 1.33%

A widening discount to net asset value (NAV) at Strategic Equity Capital (SEC) might tempt cautious investors looking to add a small cap tilt to their portfolios.

Managed since 2009 by Stuart Widdowson, the fund has delivered a NAV return of 24.5% annualised over the past five years, exactly 10% a year better than its benchmark.

Widdowson analyses companies in meticulous detail, paying close attention to their operational performance and spotting developments that are missed by other analysts and fund managers.

Building products supplier Tyman (TYMN) is Strategic Equity’s biggest investment, at 11.6% of assets. The fund is growth rather than value oriented with a weighted average price-to-earnings ratio of 17.2.

Ongoing charges at the fund are 1.3%, according to the Association of Investment Companies (AIC). The total charge for the year to end-June 2014 was 1.65%, reflecting a complex fee structure which includes a high watermark and extra charges if the fund beats its benchmark. (WC)

Higher risk, 10+ year period

These selections are intended to suit a hypothetical investor who has an investment timeframe of 10 years or more and is prepared to take on more risk in order to achieve more significant returns.

iShares Core MSCI Emerging Markets IMI (EMIM) £15.86

• TER: 0.25%

Emerging markets can be volatile in the short-term but in the long-term growth rates are likely to be superior to those in developed economies. For an investor prepared to lock up their cash for a decade or more some emerging markets exposure makes sense.

This rings particularly true after a period in which they have significantly underperformed, leaving emerging markets equities at a significant discount to their developed market peers.

This ETF offers diversified exposure by tracking the MSCI Emerging Markets IMI index. The product provides exposure to large, mid and small cap stocks from emerging markets worldwide which comply with certain size, liquidity and free float criteria.

As at 28 February 2015 China accounted for 21.8% and South Korea 14.7% of the fund. Because it is included in iShares’ ‘Core Series’ - a range of its nine most popular funds - it has a relatively low total expense ratio (TER) of 0.25%. (TS)

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Robo-Stox Robotics and Automation (ROBO) $10.47

• TER: 0.95%

A long-term investor will be rewarded for looking to the future and robotics is likely to play an increasing role in a number of different industries and sectors in the coming decades.

As with any leading edge technology there are risks but the rewards could be substantial. Global consultancy giant McKinsey estimates the application of advanced robotics across health care, manufacturing, and services could generate a potential economic impact of $1.7 trillion to $4.5 trillion per year by 2025.

This product launched by ETF Securities in partnership with Robo-Stox - the US team behind this product’s US counterpart - isn’t overly cheap with a TER of 0.95% but that reflects its scarcity value as the only way of playing this theme on the London market.

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Martin Currie Pacific Trust (MCP) 317p

• dividend yield: 2.4%

• NAV: 358.64p

• Discount to nav: 11.6%

• Ongoing charges: 1.25%

More adventurous souls seeking to harness the long-term growth of the Asian markets could invest in the Martin Currie Pacific Trust (MCP), currently trading at a 10.7% discount to net asset value. The trust is the only retail fund offering exposure to Martin Currie’s proven ‘Asia Long-Term Unconstrained’ strategy.

Managed by Andrew Graham, head of the Asia team at Edinburgh-based Martin Currie, the portfolio seeks to capture the economic growth potential of the region. It does this by homing in on Asia’s best companies, those able to grow with the region while producing high, sustainable returns and generating sufficient free cash flow to fund their own growth.

Graham seeks to buy businesses at a reasonable price, based on in-depth assessment of long-term potential. Moreover, by investing on a long-term view, the trust aims to keep transaction costs low while compounding returns.

Leading portfolio positions range from HSBC (HSBA), the banking giant generating over two thirds of its profits in Asia, to AIA (1299:HK), the life insurer operating across a slew of Asian nations. (JC)

The underlying index Robo-Stox Global Robotics and Automation tracks a basket of companies involved in the global robotics and automation industry. The selections span the world’s major regions with top Japanese companies FANUC (6954:TYO), Keyence (6861:TYO) among the top holdings. (TS)

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CATCo Reinsurance Opportunities Fund (CAT) $1.14

• Dividend yield: 5.2%

• NAV: $1.15

• Discount to NAV: 1.1%

• Ongoing charges: 1.85%

Adventurous investors looking for yield and the potential of uncorrelated returns should kick the tyres of the CatCo Reinsurance Opportunities Fund (CAT).

Bermuda-based Catco is a complex beast investing in fully collateralised reinsurance contracts and insurance-based investments including swaps, industry loss warranties and insurance-linked securities.

Increasing competition in the reinsurance industry is reducing Catco’s near-term investment opportunities and the fund is showing impressive capital discipline by writing less business and returning money to shareholders.

It has also taken advantage of lower reinsurance premiums to buy insurance on its own contracts, which should reduce risk in its portfolio.

The Association of Investment Companies says its ongoing charge, plus performance fees, totalled 4.4% in 2013. In the year, the ongoing charge was 1.85% and the performance number was 2.6%, which is slightly more than 10% of the fund’s 20.8% return in that year. (WC)

Ready-made portfolios

If the thought of picking a handful of ETFs or funds yourself sounds too daunting, or you may prefer someone else to suggest the solid foundations of a portfolio to complement your own individual share or fund selections, then you may be interested in the growing range of pre-selected portfolios being offered by a variety of ISA providers.

Many stockbrokers and platform providers are allowed to market a basket of pre-selected products to the general public even though they may not have regulatory permission to give financial advice. They are allowed to offer these packages - which are based on risk appetite and investment time horizon - because they are seen to be giving guidance rather than personal advice on a one-on-one basis.

The general range can be summarised as:

•A ready-made ISA generally containing ETFs or funds where you can choose from between typically two and 10 different portfolios based on your risk appetite, time horizon and goals, such as those offered by Share Centre, Fidelity, Hargreaves Lansdown, Interactive Investor, Nutmeg and Rplan.

•A slightly bigger menu of funds (but certainly not a list of every one available on the market), such as Fidelity’s ‘Select List’ which contains 140 different products.

•Target date funds - an all-in-one managed investment strategy within a single fund that has lifestyling characteristics - such as Architas’ BirthStar range offered by the likes of AJ Bell Youinvest, Alliance Trust Savings and Interactive Investor.

Some of these products will be actively managed by an institution and underlying holdings switched in accordance with changing market conditions, others are more passive.

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On a plate

The Share Centre’s ‘Ready-Made ISA’ is available in three different formats, depending on your attitude to risk and investment goals: cautious, positive or adventurous. Your ISA cash is invested in one of three fund of funds managed by its sister company, Sharefunds.

The ‘cautious’ fund, for example, aims to achieve a mixture of 4% dividend cash payout per year and capital growth above the IMA Mixed Investment 20-60% Shares index. Top holdings include Marlborough Multi Cap Income (GB00B5L8VH15), JOHCM UK Equity Income A Acc (GB00B03KR500) and GAM Star Credit Opportunities GBP Acc (IE00B56BC491). At the time of writing, just under 40% of the product was exposed to UK equities, just over 15% each for UK and Global fixed interest and 7.5% in North American equities.

Although The Share Centre highlights there’s no dealing commission, account administration fee or initial charges, you will be charged between 2.0% and 2.85% ongoing charges within the underlying fund.

If you buy this product to act as a cornerstone for your investment portfolio and want to add individual shares, funds or ETFs chosen by yourself, be prepared to jump through a few hoops. The Share Centre says you’ll have to move everything over to one of its standard ‘Stocks & Shares’ ISAs. There’s no charge for the transfer but you’d suddenly become liable for £57.60 annual account fee - so if you’re just looking to add one or two stocks, ask yourself if it is worth the fuss given the extra cost.

Hargreaves Lansdown’s Master Portfolio service throws up ideas for certain investor types, giving you the option either to invest in the suggested portfolio as its stands or leave a cash weighting which can be invested as you wish.

Taking the easy route

Online financial services platform provider Rplan says just under half of all customers taking out an ISA in the run up to the 5 April financial year end (deemed ‘ISA season’) choose one of its model portfolios; the rest of the year the figure runs at 35% to 40% which still implies a high level of demand for the ready-made ISA. (As a side note - Hargreaves Lansdown claims 14% of all its ISA subscriptions over the past two years were made in the last week of the tax year; 111 people applied in the final hour of the fiscal period - so perhaps all the talk of ‘last minute ISA rush’ is true).

Rplan’s chief investment officer Stuart Dyer says its customers are people ‘looking for an investment in something that gives them good returns, beats cash and beats inflation’. Fund research house Rayner Spencer Mills has created four ready-made portfolios for Rplan, all of which can be held in an ISA. Dyer says these are based on four risk criteria which cater for ‘99.9% of the investing population’.

The table below reveals the constituents of Rplan’s ‘Higher Risk Active Portfolio’ which is designed to generate growth over a period greater than 10 years. Its equities focus is predominantly developed Western Markets, with some Asia and Emerging Markets exposure to add a touch of volatility. Fixed income representation is mainly corporate bonds.

Individuals who select their own funds through the Rplan platform are able to benchmark the performance against the four ready-made portfolios. If you specify your risk appetite, Rplan will send an alert to say if the selected investments don’t match your stated risk profile. At the moment, this only happens after you’ve bought the funds, but Rplan says the alert will come before a purchase is made from June.

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Looking after money

Slightly different to your average ISA provider is Nutmeg, a discretionary portfolio manager which claims to have fees approximately one third lower than the average. It charges between 0.3% and 1.0% per year for products held in its ISA, based on how much you invest. Nutmeg builds and manages a portfolio based on an individual’s circumstances and goals, using ETFs.

There’s 10 levels of risk that provide the basis of a broad range of portfolios. Since launch two and a half years ago, only three of its 10 portfolios have beaten the market, although that figure is probably more like five or six if you factor in fees for the market return.

The biggest outperformers are in the ‘cautious’ end of the portfolio range. Does that imply Nutmeg isn’t being aggressive enough with asset choices for people with a greater risk appetite? ‘We constructed metrics of equities and government bonds as simple guide to gross market returns, i.e with no fees deducted,’ says Nutmeg’s chief investment officer Shaun Port. ‘It’s been a hard metric to beat over the past few years by everybody, particularly because of the abnormal returns from government bonds - for example, gilts returned 13% more than the FTSE All-Share last year. We were much more defensive, because we are concerned that investors could lose significant amounts of money when bond yields rise.

‘Compared to our peer group - other wealth mangers’ portfolios - we have comprehensively outperformed,’ insists Port. ‘That includes around 50,000 portfolios from the top 50 wealth managers in the UK - who have an account minimum size of £250,000 to £1 million, rather than our £1,000. We were in the top quartile for our Conservative Portfolio (no. 4) and High Risk Portfolio (no. 10) last year. Since we began in October 2012 our high risk portfolios have outperformed the average wealth manager by 4.6% net of fees.’

Lifestyle management

Investors seeking to fill their ISA with a pre-selected investment portfolio and not have to worry about active management - amending the underlying holdings to reflect changes to risk appetite as they get older - may wish to look at target date funds.

This is a relatively unknown concept in the UK, but likely to become popular in the coming years, if experience from overseas is anything to go by.

‘The US target date funds market went from $71 billion in 2005 just before (pensions) auto-enrolment came, to $702 billion today,’ says Henry Cobbe, managing director of Architas BirthStar Target Date Funds. ‘The most important thing in getting your investments sorted is getting the asset allocation right. The main driver for your risk capacity - which is different to risk appetite - is age.

‘As you get older, people have less risk capacity. So when you are younger, you can afford to grow your investments as fast as possible. But when you are older, you have to be more careful. Target Date Funds do all of this for you within one fund,’ states Cobbe.

In the UK, target date funds are used by Nest, the government-established workplace pension. Additions to the scene include Architas, owned by AXA, which launched its BirthStar target date funds range to retail investors at the start of 2015. You specify how long you want to save money to build up a pot of wealth. Once you reach the end of that period (the ‘target date’), the fund switches from higher-risk to lower-risk assets to support sustainable withdrawals of cash.

The funds can be held in an ISA (and SIPP) and are available via Architas and financial service providers such as AJ Bell Youinvest, Alliance Trust, The Share Centre & Strawberry. The ongoing charge is capped at 0.55% but you do have to pay a 4% entry charge. Seven funds are presently available, described by Cobbe as ‘active allocation, using passive component funds’ including Architas BirthStar Target Date 2015-20 R Acc (GB00BP8Y4W80) and Architas BirthStar Target Date 2046-50 R Acc (GB00BP8Y5818).