Matt West is investing for his three young children so they’ll have money to use as house deposits when they’re older. He tops up their junior Isas, which he holds on platform Hargreaves Lansdown, with regular monthly direct debits, plus any money the children get for Christmas.
“I’ve tried to look at investments that will be there forever and be sustainable,” says the 38-year-old Londoner.
There’s certainly a theme running through his options: he’s chosen the BlackRock World Technology Fund, the First Trust Global Cloud Computing ETF and the Baillie Gifford American fund, which targets US tech giants.
“Technology underpins everything,” he says.
But, while concentrating on US and tech stocks has served investors like West well until now, advisers warn that this approach looks riskier for 2025 and beyond.
“The biggest investment trend of the last few years can be simply described in three steps: stick your money in a global tracker fund, leave it there, watch the bull market in US technology stocks grow your wealth,” says Laith Khalaf, head of investment analysis at AJ Bell. But how long can that continue?
As of about six weeks ago, the money was still flowing to all the usual places. Kate Marshall, lead investment analyst at Hargreaves Lansdown, says the most popular funds and investment trusts held by clients in January were concentrated in three key areas: global, US and technology companies.
“It’s understandable why,” she says. “Many [of these] companies, particularly across the US and tech sectors, have gone from strength to strength.”
But the party may already be over for US stocks. Vanguard expects annualised returns of around 3-5 per cent for US shares for the next decade, and 7.5-9.5 per cent for developed markets excluding the US. This compares with an expected annual return of around 4.5-5.5 per cent over the same period for global bonds.
“It’s difficult to know what to do here,” says Khalaf, “because if the S&P 500 continues to outperform, you’ll fall behind if you dial down exposure. At the same time many investors will have a lot of money tied up in a relatively small number of large US tech companies, which opens them up to the possibility of an outsized effect on their portfolio if those companies take a tumble.”
For passive investors, concentration risk has become a serious problem. US stocks now account for 66 per cent of a simple MSCI All-Country World ETF — with a hefty portion coming from the “Magnificent Seven” tech mega caps. The next largest country weighting, Japan, is roughly 5 per cent, about the same as Apple.
“For every £1 of an S&P 500 ETF you buy, over 37 pence goes into the 10 largest companies, and around 47 pence into the top 20,” says Alex Watts, fund analyst at Interactive Investor. “While earnings of some of these tech giants have been robust, and there is no consensus on whether this status quo will continue, at the very least investors could be underexposed to small and mid-sized stocks, or to sectors outside of tech.”
Certainly, there’s the risk of a correction. “The arrival of the Chinese AI firm DeepSeek on the scene has so far proved to be a bit of a flash in the pan, but it highlights the kind of development which could knock some of the big tech titans off their performance perch,” says Khalaf.
For most wealth managers, the solution is a renewed focus on diversification.
“Diversification means different things to different investors,” says Evangelos Assimakos, an investment director at Rathbones. “Investors that are more risk averse should marry up stock market investments with asset classes that offer a reliable ‘shock absorber’, be that in the form of gold bullion, a short-dated government bond or a carefully vetted absolute return fund,” he adds. “For investors with a higher appetite for risk, diversification may focus more on ensuring their stock market exposure is not unduly concentrated to one or two sectors that may have done well for them.”
Bestinvest analysts suggest the Premier Miton US Opportunities fund for higher exposure to mid-caps and smaller companies, or the Xtrackers S&P 500 Equal Weight UCITS ETF to reduce heavy exposure to big tech stocks. Alternatively, for cautious investors who want to diversify away from US tech, Rob Morgan, chief analyst at Charles Stanley, picks JOHCM Global Opportunities, and Personal Assets Trust for less volatile returns.
“So far in 2025 Chinese tech companies have returned near 29 per cent, while US tech has floundered,” says Watts. For investors looking to top up on other regions, or who feel their current allocation underexposes them to China, he suggests the HSBC MSCI China ETF, which offers broad exposure to over 580 large and mid-cap companies, with a low fee of 0.28 per cent.
For investors who have seen their UK allocation underperform but who want to stick with the country, he suggests the Fidelity Special Values Trust, whose managers look for companies that are undervalued by the market. “This valuation and contrarian focus makes for benchmark differentiation, and typically leads managers to allocate heavily to small and mid-cap [companies],” he adds. The fund can be bought at a discount to net asset value of 5 per cent.
As Isa season hots up, the key is to avoid making ad hoc investment decisions, says Jason Hollands, managing director at Bestinvest. “One of the most common mistakes made by do-it-yourself investors is to get to the end of the tax year, decide to open or top-up an Isa and select a fund or trust based on whatever is currently in vogue or has been performing well.”
Over time, this approach leads to sprawling collections of funds which can resemble “a museum of once-fashionable ideas”, he says.
James Norton, head of retirement and investments at Vanguard, says: “Would you really go into a shop and ask to buy more of something where the price has just been increased by 20 per cent or more? Following the herd instead of focusing on your individual goals and attitude to risk rarely pays off.”
West is topping up his tech holdings within a diversified portfolio because he believes that over 10 years tech innovation will outperform other sectors. But he agrees there is a risk that shorter-term performance will not match that seen in recent years.
He also admits to having a collection of old ideas that he no longer contributes to. “I still have the Royal Mail stocks from its IPO and I have a Fidelity China Fund that I think will come good in the next 10-20 years — also a very old Bric fund from 2010 when it was all the rage,” he says. He’s leaving them where they are for now, but many wealth managers say investors should be more disciplined in selling old holdings.
If keeping a close eye on your portfolio and regularly rebalancing funds and stocks sounds a bit too much like hard work, some platforms now offer managed portfolio options — sometimes called “managed Isas” — where a fund portfolio is selected, kept under review and rebalanced for you in a similar way to multi-asset funds, which come in a range of different risk profiles.
Brian Angulo is 33, lives in London, and has had his managed Isa with Vanguard for more than a year, intending the money to be for five years ahead, maybe for a house purchase. “Before I invested with Trading 212 but found myself not capable of choosing shares and index funds. I found it too scary,” he says.
Choosing your level of risk is crucial. A “balanced” approach might contain 60 or 70 per cent exposure to shares and 30 or 40 per cent to bonds and other assets. As of the end of January, the ready-made “balanced” portfolio with the best annual performance was eToro’s “Core Moderate” product, with returns of 16.5 per cent net of fees, according to research by Investing Insiders (for whom, full disclosure, I’m an editorial adviser). Over the same period, the top-performing “aggressive and adventurous” portfolio — products which typically have a higher allocation of equities — was eToro’s “Core Equity”. It returned 23.7 per cent and is entirely made up of equity ETFs. Both of eToro’s portfolios are built with asset allocation guidance from BlackRock.
While risk levels can change, often decreasing, as you move through life stages, your tolerance often depends on your other investments too.
Edwina Hudson, 67, lives in Coventry. Her main source of retirement income is her pension but she also has cash and stocks-and-shares Isas. “During the build-up to retirement we were getting as much as possible into both Isas and pensions,” she says. “The thinking was, Isas were accessible if we needed a new car or for things like paying for a wedding last year.”
Hudson has a stocks-and-shares Isa with a risk profile of six, just above their provider’s middle risk level of five. “We’ve not reduced our risk profile into retirement because we have cash Isa and enough pension income,” she says.
Whatever your tolerance to risk and your diversification strategy, a key way to make sure your Isa is well placed for 2025-26 and beyond is to make sure it’s held on a platform that keeps your costs low.
Only 7 per cent of investors always compare the fees of an investment platform with its peers when looking to open a new account — leaving the overwhelming majority in the dark when it comes to their platform fees and at risk of overpaying, according to new research by Interactive Investor.
Because providers have different fee structures for different services, working out which offers you the best value for money will depend on how much you have and what you want to do with it. Those who want to trade individual stocks frequently will prefer to go for a platform with a lower trading fee; those with a larger portfolio might opt for a platform that charges a flat monthly fee, rather than a percentage of your assets. Firms that allow you to compare platform fees and services include Boring Money and Compare and Invest.
“Average fees have fallen and also digital content and apps have got a lot better, so if you haven’t moved your Isa or reviewed the market for some time, it’s worth having a look at what’s out there,” says Holly Mackay at Boring Money, a consumer investment website. “If you are paying above the odds, or if you’re stuck with a rubbish app, or a frustrating website, do have a look around.”
If you trade UK shares, there are now a handful of providers who do not charge any Isa account or trading fees for UK shares. But the biggest change is the quality of apps which may appeal to more seasoned investors, including Lightyear, Saxo Investor, Trading212 and xtb.
“The level of information surfaced on these apps, with content, tips and ideas is pretty good and makes some of the incumbents look dated,” says Mackay. “You may not want to transfer larger sums here, and make the case for governance over glamour, but you might also find the combo of low costs and fancy apps quite appealing, if only for a bit on the side.”
https://www.ft.com/content/a7b30418-abf2-4f7e-8908-f68ed5d0557f
