‘I'm 50 with 10pc of my money in gold, how should I invest before I retire?'
Dear Victoria,
Could you please give me your thoughts and opinion on my exchange-traded fund (ETF) portfolio. It is for the long term as I am 50 years of age and I am intending to stay invested until my retirement age of 67 or 68.
I know my bond allocation is quite low but I have quite a high gold allocation as a substitute hedge and so far it has done well in a downturn. My total expense ratio – the annual fee for the funds' operating expenses – is 0.13 and I have back-tested the portfolio and the Sharpe ratio (how investments have performed compared to risk-free assets) is 0.93.
I also have a satellite fund portfolio that is separate but it makes up 5pc of my total investments.
- Anon, by email
Dear reader,
It is good to see you've got a long-term plan – as they say, time in the market beats timing the market so giving yourself as long as possible to get to where you want to be financially sounds like a great idea.
There's lots of things to like here including your use of ETFs. Building a portfolio via ETFs has become a popular strategy for many investors thanks to the vast amount of choice out there and their competitive, low costs. Within your ETFs you've got some good building blocks too – a manageable amount of funds spanning different asset classes and geographies.
Your almost 10pc allocation to gold has served you particularly well lately. I don't know when you bought in, but gold investors have been enjoying the precious metal's boom of late. The World Gold Council said physically backed gold ETFs posted their highest half-year inflows since 2020 this year.
Gold is seen as a safe haven and an inflationary hedge so it can help shield portfolios from Trump's tariff uncertainty and the geopolitical turmoil. These global dynamics pushed gold to an all-time high of $3,500 (£2,634) per troy ounce in April – it has gained around 30pc so far this year and around 40pc over the past 12 months.
One thing I would question is whether your gold allocation is truly a 'substitute hedge' for a bond allocation as you suggest. While both are legitimately 'defensive' parts of a portfolio, they can behave very differently depending on market conditions. The main difference I'd highlight is the impact of inflation and interest rates. Gold typically rises amid price pressures in an economy, whereas inflation is seen as kryptonite for bonds as it eats into the 'real' returns of fixed income assets. Inflation also probably leads to higher interest rates, which means that existing bonds will have to fall in value for their yields to come into line with market rates.
On the other hand, bonds could do very well if interest rates drop more than the market expects, such as in a recession. The outlook for gold would be less certain in a downturn, but bonds could deliver a significant portfolio boost. That said, at 50 years old and with a decent stretch of time ahead of you, your 10pc allocation to bonds looks appropriate. When you finally hit retirement, upping your allocation to a roughly 60/40 stocks-to-bonds ratio and de-risking your portfolio might make more sense.
Xtrackers MSCI World Quality has been a great choice over the long-run, ranking just outside the top quartile of global funds over three and five years, returning 58pc and 85pc respectively. Performance has lagged a bit this year, but I wouldn't worry about that too much – you want steady performance from this tracker and so you wouldn't expect it to do as well as during rising markets, when racier shares (like tech stocks) are leading the charts as has happened recently due to the AI boom.
With over 15 years to grow, I think you could benefit from some more tech-focussed funds. Artificial intelligence developments have only really just begun in my view, and I think there could be lots more gains ahead for companies involved as the tech advances begin to be integrated into products and company workflows.
With that in mind, and given that you like listed funds, Invesco Nasdaq-100 Ucits ETF (EQQQ) could be a strong option – it owns the largest shares on the Nasdaq exchange, which is a who's who of US tech giants. While not an ETF, you could look at Scottish Mortgage (SMT) too, which is an investment trust that looks for fast-growing shares from around the world. It owns private as well as public stocks and the top positions are currently SpaceX, MercadoLibre, Amazon and Meta. Fees are exceptionally low for an active fund at just 0.32pc.
Best of luck,
- Victoria
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.
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