'I'm 21 and have £11,000 – can I retire in 20 years?'

Time in the market can be one of the biggest advantages available to investors, especially if they get started early. But how you invest makes a huge difference to how well you build your wealth over time.

Ron is 21 and still at university but has already made a strong start. He started investing around three-and-a-half years ago and has a fledgling Isa portfolio, with £11,000 in a Trading 212 account accumulated via “part-time jobs and portfolio growth”. He invests £200 a month and wants to increase this once he is working full-time in two years. The amount will depend on his wage, but he hopes he can double it to £400 a month. Ron also puts £50 a month into a pension and expects this to increase in future.

His ambitions are reasonably simple for now, even if he remains unsure about how he might put his wealth to work in medium term. “I want a large amount of money for later in life and never withdraw from my portfolio,” he says. “I’m not 100 per cent sure what I want to do with the money as of yet but time will tell – it could be an emergency fund, put it towards building a house or providing for my family.”

Having said that, he wants to stop working in his 40s or 50s to work on his family's farm. “Here I want to grow our current holiday cottage business into a larger venture, so a lot of this capital will hopefully go towards that, along with loans – at current prices my venture will cost approximately £2mn,” he says.

Ron already earns £6,000 a year and expects to either work for a large accounting firm or play semi-professional sport once he graduates from university, before moving on to work in the City. He also has some assets, with £2,000 in cash and a 'vertical farming' business, which he values at approximately £2,000. He is also the heir to a farm worth around £3mn.

Like many beginner portfolios, Ron’s list of investments is reasonably simple, with positions in a few popular US stocks and allocations to passive funds focused on the S&P 500, FTSE 100, bonds and property.

“Some 70 per cent of my money goes into my index auto investor, which consists of 60 per cent into the S&P 500, 20 per cent into the FTSE 100, 10 per cent into UK property and 10 per cent into bonds,” he says. “The other 30 per cent goes into stocks: an equal share between Apple (US:AAPL), Meta (US:META), Coca-Cola (US:KO), Kraft Heinz (US:KHC) and Alphabet (US:GOOG),” he says. Alphabet has just been added to the portfolio.

Ron already has some good habits and wants a 10 per cent annual return. He notes that he tends not to check his portfolio too often. However, he confesses to being a “novice” when it comes to investing, and wonders if his current selection could be more adventurous. “I feel my current portfolio is quite risk-averse, however I am not opposed to risk as I am still very young,” he says.

He also wonders if he should change how he invests based on his career plan. He is hoping for a career in the City and is worried about his ability to invest in some companies and funds, depending on his employer.

NONE OF THE COMMENTARY BELOW SHOULD BE REGARDED AS ADVICE. IT IS GENERAL INFORMATION BASED ON A SNAPSHOT OF THESE INVESTORS' CIRCUMSTANCES

Jason Hollands, managing director at Bestinvest, says:

It is great you got off to an early start. The first few pounds anyone invests prove the most valuable because they have the potential to compound over time. As someone who aspires to retire early, one thing you should do when you begin work and have the security of a regular salary is plough as much as you can into a pension.

As for your Isa, my first observation is that you should give some thought to what type of investor you want to be. Many IC readers enjoy investing in stocks, following companies and their results, assessing whether their valuations are reasonable or overblown and making the occasional trade. Others prefer to invest through funds, investment trusts and exchange traded funds (ETFs), which bring the benefit of greater diversification and are therefore inherently less risky. When you graduate, if you do enter the accountancy profession or secure a job in the City, you are likely to find that various restrictions will apply on share investing.

Currently, you are investing in both fund and shares. The result is a very high level of concentration in four shares – Apple, Meta Platforms, Coca Cola and Kraft Heinz – which on the surface represent 30 per cent of the Isa. Meta represents half of this. However, your underlying exposure to these companies is even higher than it may seem, as they are constituents of your holding in an S&P 500 index fund, so there is a degree of overlap. In the case of Apple, it is the second-biggest stock in the index and represents nearly 6 per cent of the fund.

Academic studies have demonstrated that asset allocation – how an investor chooses to spread their portfolio across different asset classes – is the most important factor in driving long-term returns, which is why professional investors spend much of their time and resources thinking about it.

However, many private investors give it little thought and instead dive into the thrill of picking stocks or funds. As you continue with your investment journey, I would encourage you to think about your approach to asset allocation regularly and only then slot in the investments that will fit within this.

Overall, around three-quarters of the Isa is in US stocks, which is very high, as the US is around 63 per cent of the MSCI All Country World index [in the MSCI World index the proportion is 70 per cent]. Granted, the US equity market has undeniably been an impressive performer, and in recent times has been driven by a small number of mega-sized companies benefiting from excitement about artificial intelligence. However, market concentration in the US is now at extreme levels, not seen since 1929, and valuations on US stocks are looking stretched on most measures. I would therefore encourage you to think about a more diversified approach.

There are some notable gaps in your portfolio, with no exposure to European (ex-UK), Japanese or emerging market stocks. For a young investor with a long time horizon, I would prioritise diversification across a wider range of equity regions over and above your allocations in bonds and UK property funds.

Funds to consider include BlackRock European Dynamic (GB00BCZRNN30), Templeton Emerging Markets Investment Trust (TEM) and JPM Japan (GB00B1YXDH97).

Alongside taking a more global approach, consider adding a little gold at some point as a form of de facto insurance in tougher times. This can be achieved through buying an exchange traded commodity such as the Invesco Physical Gold ETC.

Alex Brandreth, chief investment officer at Luna, says:

It is great to see that you have started investing using both an Isa and a pension. Both are attractive ways to invest because of the different tax benefits. When you start working, your employer will also contribute to your pension, so be sure to take advantage of this.

Rather than risk averse, I would classify your portfolio as high-risk due to the high allocation to stocks, at nearly 90 per cent. On top of this, holding four – and soon to be five – individual companies introduces an element of stock-specific risk.

This is what is known as your ‘attitude to risk’. That being said, another important point when considering risk is your ‘ability to take risk’ and, as you point out, this is high given your young age and desire to invest for a long period.

I appreciate you have your personal preference for individual companies, and they have performed well. However, I would suggest sticking to collective funds at this point. As your portfolio gets larger, you can add more holdings and diversification. For example, we would typically hold 15 to 20 companies in a portfolio to get that spread across regions, sectors and companies at different valuations.

Given that you are a relatively passive investor, your strategy of selecting passive funds is appropriate and it’s a low-cost and efficient way to invest. But there are a lot of markets that you are not investing in at the moment; European, Japanese and Asian equity markets stand out as possible additions in due course.

At this stage, it's difficult to know if you will reach your desire of retiring in your 40s and returning to the family farm. There are so many variables at play. As you mention, your choice of career, which will be your biggest source of investment capital over the coming years, will have an impact on your salary and your ability to invest in both your pension and Isas.

Under current legislation from April 2028, you won’t be able to take money from your pension until age 57. We also work on the basis that a roughly 8 per cent return a year is more appropriate over the long term, so I would slightly temper your enthusiasm for 10 per cent.

Finally, in terms of expanding the holiday cottage business; we don’t know where interest rates will be at that point or the state of the banking sector, and that cost could be extremely different due to the impact of inflation.

You ask about restrictions on investments if working in the City. We see this issue regularly, and it means that there may be certain companies and investment houses that you are unable to invested in. I wouldn’t worry too much about this: the investment world is huge and there will still be ways for you to invest and get a good level of diversification.