Investment strategies for short-, medium- and long-term gains

There is often a significant focus on investments themselves rather than the theories that underpin the construction of a coherent, relevant portfolio that meets an investor's goals.

Most investors are, to some extent, guilty of buying faddy investments that they subsequently regret, or that are too risky or pedestrian to meet their long-term objectives.

In this series, Cherry Reynard guides investors on the basic decisions they will need to take when building a portfolio.

This month we examine goal-based investing, with a focus on short-, medium- and long-term targets.

Short-term gain

In general, if investors have less than five years to generate their money, they are limited to low-risk, near-cash investments. The only exception would be if their goal doesn't have a fixed cost and they are willing to take some risk in the hope of a better return.

The aim should be to generate a better return than cash, but without exposure to significant risk of capital loss. This could be via short-dated bond funds such as those offered by Threadneedle, Smith & Williamson or M&G. For those willing to take a little more risk, a balanced multi-asset fund that offers a diversified spread of assets may be appropriate: the M&G Episode Balanced or Kames Ethical Cautious Managed, for example.

Medium-term gain

Medium-term goals are those with a five-to-nine-year time horizon. Investors can afford to ride out some volatility in markets and need to protect their portfolios against inflation. It is therefore worth incorporating some stockmarket investments.

Investors could go for a pure equity fund, but may be well advised to minimise volatility by sticking at the defensive end with a UK or global equity income fund. Popular choices include the M&G Global Dividend and Threadneedle UK Equity Income funds. For a more diversified fund, investors could look to Jupiter's Merlin range of multi-asset funds.

Long-term gain

For those investors with 10 or more years to go until they need their cash, far more options are available, including racier asset classes such as emerging markets, smaller companies and private equity - although these should make up part rather than all of a portfolio.

The best portfolios aim for some capital growth to compensate for inflation, especially in a low interest rate environment, and are well diversified. Income funds offer a lower-risk way to dip into more volatile markets: Newton Emerging Income or Somerset Emerging Market Dividend Growth, for example. For one-stop-shop investments, investors could try the "growth" portfolios offered by multi-asset managers. Jupiter, Cazenove and M&G all have credible offerings.