Adding some fixed income exposure to those equities – a 20pc bonds, 80pc stocks mix – reduces the volatility.
A portfolio with this mix typically falls less, reduced to 19pc before recovering over time. Return expectations are also dampened with volatility however, and an average return on £1,000 over five years is £1,892.
Still too much of a drop? A portfolio with a mix of 40pc equities and 60pc bonds only falls 8pc on average before recovering and a typical five-year return turns £1,000 into £1,605.20.
Fit your investments to your goals
Your risk appetite is informed not just by your personality type (I’m a “Commander”, according to Myers Briggs – make of that what you will), but what are you trying to achieve with your £1,000.
Is it the first investment – a core to what will become a larger portfolio with several different investments? Or is this an addition to an already well-diversified portfolio?
Scenario one: this is your first investment
In this case, you’ll want to achieve maximum diversification with this first hit to provide a good basis for any other cash you’re able to invest in future.
For those who have the stomach for maximum risk-to-return, it’s a 100pc global equities fund all the way. You could opt for a cheap passive index tracker, or look to one of the few fund managers who have generated positive performance over a global benchmark through the market cycle.
Past performance is no guarantee of future returns, but if they’ve managed to weather the global financial crisis, the pandemic, an interest rate cycle and Trump’s tweets they’ll likely have some stock-picking skill.
For a global tracker, we like Fidelity Index World, a tracker fund that offers exposure to the whole of the developed world – a simple way to form the equity foundation of a portfolio.
Alternatively, the Vanguard FTSE All-World ETF tracks an index of large and mid-sized companies from developed and emerging markets, covering around 90pc of the global investable universe.
If you want to go active, you’ll invariably introduce some style bias, meaning potentially more periods of underperformance and volatility than a passive option but, with a good fund manager, better returns too.
We like Rathbone Global Opportunities, run by James Thomson who, our analysis shows, has outperformed the global stock market since he took over the fund in November 2003.
His growth style can be out of favour for prolonged periods, however, so you may wish to blend – £500 a piece – with a value-tilted fund such as Fidelity Global Dividend. Manager Dan Roberts has one of the strongest stock-picking records in the global equity income sector.