These Model Portfolios surge 80% in 4 years

The past year has been a roller coaster ride for investors. In February 2015, rising UK share prices finally pushed the FTSE 100 index above its record level, previously reached in 1999. It went on to hit a new closing high of 7,104 on 27 April.

However, share prices then started to fall and suffered a particularly sharp dip in August amid growing worries about the state of the Chinese economy. Stockmarkets had only partially recovered before recent volatility. Such fluctuations can be unnerving for any investor - but even more so if you are managing your own investments.

To help go-it-alone investors through such uncertain times is one of the reasons our sister magazine Money Observer set up its 12 Model Portfolios in January 2012, particularly for those who were no longer able or willing to pay for professional advice after the introduction of fee-based advice in January 2013.

Click here to find out how our model growth portfolios have performed since their inception in 2012.

Click here to find out how our model income portfolios have fared over the last four years.

Diversification

The aim of the portfolios is to help investors who want to grow their capital, or use existing lump sums to generate a regular income, from funds and investment trusts. Spreading your investment across a portfolio of several funds provides diversification and helps smooth out returns.

Within a portfolio it is possible that holdings will move in different directions at certain times, but this is not necessarily a bad thing as it is an indication of diversification. While it is advisable to keep an eye on individual holdings, it is also important to consider overall progress and whether it is achieving your objective.

To help, investors in the Model Portfolios should ensure they keep abreast of the portfolios' quarterly commentaries. These reviews comment on performance and trends and often include fund switches and new choices for individual portfolios. They are published on the Interactive Investor website, on the Money Observer website and in the February, May, August and November issues of Money Observer.

Interactive Investor clients can purchase the portfolios as a single investment at a reduced price. They also receive targeted email alerts detailing any changes to a Model Portfolio they have an interest in.

Investors who take charge of their own investments need to be especially careful to focus on their objectives and think about their time horizons and attitude to risk. When we set up the Model Portfolios we decided to construct six for income and six for growth to indicate the range of factors that need to be taken into account.

Most importantly we separated each set of portfolios into medium and higher risk versions. To avoid any misunderstanding, we did not include low-risk options, mainly because people often interpret "low risk" as "no risk".

It is important to point out that investors who cannot tolerate the thought of monetary losses, even on a temporary basis, should steer clear of these portfolios and stick to cash.

Strong gains

We have always emphasised that there is no guarantee the portfolios will achieve their objectives. Although investment in the stockmarket has generally paid off handsomely over the medium to long term, there is always the risk of loss, especially over short periods.

With a heightened sense of anxiety that global equity and bond markets face a volatile year, this is a timely reminder of that fact.

It is now four years since the portfolios were originally set up. This is still a very short time over which to judge any investment strategy, however, it is good to see that all the portfolios have made gains - with several making very strong gains - over this period.

The best performing portfolio since inception is Lima, the higher-risk version of the growing income portfolio, which has produced a total return of nearly 80%*.

The backmarker was Echo - the higher-risk version of the medium-term growth portfolio - which is up just over 30%. All but two of the 12 portfolios outperformed the FTSE All Share index (with income reinvested) over the same period.

The past year has been tougher but once again only two portfolios underperformed the FTSE All Share index during 2015. The best performer was a growth portfolio, Bravo - the medium risk version of the medium term growth portfolio - which returned 8.5%.

Unfortunately, the worst performer over the past year actually made a small loss. Golf, the medium risk, immediate income portfolio, fell 1% in value, although over the final quarter of last year it moved back into positive territory and we are hoping that, after the switch we are making at this review, it will recover its lost ground.

*Figures correct at time of writing

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.