Just as your tastes change as you age and the pace of your life switches gear, so should your investment choices.
Some funds and investment trusts will suit your needs when starting out but may not be the right choice decades down the line when preparing for retirement.
Similarly, anyone investing for a child or grandchild should not necessarily replicate their own Isa.
Of course, there are core investing principles no matter your age such as spreading holdings across a range of geographies and sectors, and maintaining a long-term view.
And whatever your age, stocks and shares Isas are a good way to save, be it for a deposit for a first home, a nest egg to fund a child’s education or a boost for retirement.
We asked investment platform AJ Bell to reveal the top-five investments its customers hold in each decade of their life.
Under-18s
Anyone can invest up to £9,000 a year on behalf of their children or grandchildren in a Junior Isa, which is locked away until they reach 18.
So if you open an account for a newborn, you know you have 18 years for your investments to grow.
Anyone can invest up to £9,000 a year on behalf of their children or grandchildren in a Junior Isa, which is locked away until they reach 18
Jason Hollands, managing director at BestInvest, says this long runway rides out market ups and downs, adding: ‘That typically makes a strong case for a high allocation to equities via global equity funds in the early years.’
Popular options could be a low-cost tracker fund, such as the Fidelity Index World fund, he says. This tracks the performance of the largest companies in the world and has an annual cost of 0.12pc. He also points to a diversified global investment trust such as Alliance Witan or F&C Investment, two of the UK’s most established trusts.
As the child approaches 18, consider gradually dialling down the risk, especially if the teenager may need the cash for university.
Hollands adds: ‘This could involve switching some of it into cash, or a bond fund, or into a more defensive, lower risk multi-asset investment such as Personal Asset Trust.’
In your 20s
The earlier you start investing, the better, so anyone starting in their 20s is off to a good start. But as they tend to be new to investing, the vast array of options can be daunting.
It’s best to take a simple approach – iShares Physical Gold is the most popular fund held by 18 to 29-year-olds with AJ Bell. It tracks the price of gold, traditionally a safe asset. The second most held investment is the Vanguard S&P 500, tracking the US’s largest 500 listed companies. In third place is Fidelity Index World, a low-cost tracker that is popular with all those under 50.
For young investors it all depends on what they will need the money for – and how soon, says Hollands.
He says: ‘If the primary goal is building a house deposit within five years then a high-risk, equity-heavy strategy could backfire. In that scenario, a more cautious mix – perhaps a multi-asset fund that includes bonds, cash-like instruments and a little gold – may be appropriate.’
But someone in their 20s investing for retirement may have 40 years until they access their cash, which means they can take more risks.
As a rule of thumb, low-cost global index funds or diversified global equity funds are sensible core holdings, Hollands adds.
In your 30s
By your 30s, your priorities and pressures are likely to start changing – you may have a young family to look after and a mortgage to pay.
Hollands says: ‘Growth remains important and equities should typically form the backbone of a portfolio. However, investors in this phase may benefit from broader diversification – blending global equities with some fixed income or multi-asset funds to smooth volatility.’
He says this is particularly relevant if there are medium-term goals alongside retirement planning – still about 30 years away.
By your 30s, your priorities and pressures are likely to start changing – you may have a young family to look after and a mortgage to pay
This appears to be the approach of AJ Bell customers, whose top holding is a single stock, which typically presents a higher level of risk than tracker funds or investment trusts.
US microchip designer Nvidia is the most popular holding. The artificial intelligence pioneer is now the world’s biggest firm with a £3.5trillion stock market value.
It has been a stellar pick for investors as the shares have risen 12-fold in the past five years. But Dan Coatsworth, head of markets at AJ Bell, says it’s important to note that the most popular investments show just a snapshot of people’s portfolios and not pots in their entirety.
In your 40s
At this age, your income may be rising, but financial pressures may be piling up. You might be facing private school fees or planning to help with university costs.
Retiring is still more than 20 years away, so growth remains important.
Like those in their 30s, this cohort’s top holding is Nvidia, followed by an investment in gold with the iShares Physical Gold fund.
In your 50s
In your 50s, it often comes into sharp focus that retirement is not far off. So this is an age when many ramp up savings and investments to prepare for it, especially if children have flown the nest and mortgages are repaid, Hollands says.
‘But it is also a time where those who have managed to accumulate significant sums in their Isas and pensions might want to protect what they have built up by dialling down the risk a little,’ he adds.
An old rule of thumb suggested owning ‘your age in bonds’ – so by age 50 half your portfolio would be in bonds and half in shares and by 60 you should have 60pc. But Hollands warns this is out of date due to changes in the pensions system.
Until 2015, most pension savers had to use their retirement savings to buy an annuity. This is where you give a company a lump sum from your pension in return for a guaranteed yearly income until death.
Since then savers have been given the option of drawing down from their pension pot instead, taking as much as they like, when they like.
Hollands says: ‘Clearly, you would not want to suddenly see a big drop in the value of your investments just ahead of buying an annuity. However, with people now living longer than previous generations thanks to medical advances,
I believe de-risking your investments too early, whether in an Isa or pension, could be a mistake. With the higher long-term returns that equities have consistently delivered, there is a risk your savings pot runs out too soon because it doesn’t deliver sufficiently higher returns than inflation.’
So while it may be a good idea to start phasing out some of the risk in your portfolio, it’s crucial you don’t abandon equities entirely. Hollands suggests diversifying into assets such as bonds, absolute return funds and gold, saying: ‘A multi-asset approach is the right one.’
British defence and aerospace superstar Rolls-Royce is the top holding among 50-something AJ Bell customers. Its shares have risen tenfold in the past five years.
In your 60s
Generating an income from investments may become a key focus for those in their 60s
Generating an income from investments may become a key focus for those in their 60s.
Single shares that are known to pay dividends are popular choices, as are funds and investment trusts that generate an income, as well as bonds and gilts – UK Government bonds. Shares in Lloyds and Aviva are the most popular for this age range and older.
Coatsworth says: ‘Such insurance and banking names often provide slow and steady growth with tasty dividends the cherry on top.’
These stocks are top dividend payers, thanks to consistent payouts and strong capital reserves.
The Scottish Mortgage Investment Trust is another favourite. Run by Edinburgh-based investment house Baillie Gifford it is part of the FTSE 100. Coatsworth says: ‘It backs tomorrow’s potential winners and provides a different dynamic to Isa portfolios.’
70-plus
In retirement, generating an income and preserving your wealth are paramount.
But growth should not be ignored entirely given we are all living for longer, says Hollands.
He adds: ‘Portfolios may tilt to income-generating assets and lower-volatility strategies. That could include dividend-generating equities, bond funds – possibly infrastructure and property.
‘But a 70-year-old in good health with ample pension income may be able to be more adventurous than someone 15 years younger who plans to retire imminently.’
People in this age bracket are seeking more growth, says Coatsworth, adding: ‘They are likely to have decades of experience and have learnt the benefit of being patient and letting wealth compound. They either want their Isa to grow by more than the rate of inflation to preserve their purchasing power; they want their pot not to run out before they die; or they want to build a legacy and pass down wealth.’
And the winner is…
We asked AJ Bell which group would have seen the biggest return if they held the five most popular investments. Those in their 50s returned 219pc in the past three years. Those in their 40s and 30s got returns of 199pc and 196pc respectively. The 70-plus category saw a 67.5pc return, while those in their 60s got 60.4pc. Junior Isas got 49pc.