In her latest blog, What Investment publisher Sara Williams explains how she has adapted her portfolio in the current environment.

Nudging towards 6,000? Will the FTSE 100 burst through this barrier or slide back down? If I’m honest, in the short-term I’d say there’s a greater risk of seeing 5,500 before we shoot over 6,000, but I’d love to be proved wrong (although I’m confident about the market in the long-term because lots of stocks still look good value to me). But I’m not with the real short-term pessimists – I noticed last year when the index was plunging and there was extreme volatility that every time the FTSE 100 index got to 5,000, buyers, including me, quickly snapped up shares. I don’t think that we’re going to see anything less than 5,000 again, unless the whole Euro implodes. But the Greek default looks like it’s priced in already.

So I’m sticking to my policy of being fully invested. In fact, our portfolio holds very little cash at the moment. I’m treating preference shares, corporate bonds and corporate bond funds as being very near to cash – I would find it too hard to stomach having money on deposit earning almost nothing and I don’t see interest rates rising for many months. So, breaking all the rules, we’ve almost no cash.

I’ve even applied that policy to a sum of money that we’ve managed to release from some of our very illiquid investments (property and the like), which we want to put aside to provide deposits for our two sons. We expect some time over the next two years that they will both be buying their first flats and want to have money to hand. I researched some corporate bond funds very carefully, trying to find those that fluctuated the least compared to the equity markets, and settled on M&G Strategic Corporate Bond and Kames Investment Grade Bond. These aren’t the highest-yielding funds but I sacrificed yield for stability, and they are still forecasting a dividend yield of over 4 per cent. I’ve put the bulk of the money into these two funds, but also opted to put part into a General Accident Preference share, yielding over 7 per cent, and some AstraZeneca shares. Fingers crossed for those two.

In our main portfolio, the major movement since I last wrote has been the sudden fall in the value of our Tesco holding. Not the biggest of our holdings and our only retailer, it had been a poor performer over the last couple of years anyway. We’d held the shares though because we’d seen what the retailer was doing in Malaysia a couple of years ago, and it seemed to us a way to back a well-run company trying to build a business in faster-growing economies than the UK. That reasoning is unchanged, despite its lacklustre UK business. So, I’ve already started to top up our Tesco holding and will gradually buy more on any dips, although probably keep it as a medium-sized holding in our portfolio.

Tesco aside, a lot of holdings have shown increases over the past month, although nothing like the 30 per cent or so that we could have seen if we’d been in some bank ordinary shares. We hold a number of bank preference shares and the improvement in sentiment to banks has meant that these are now all showing a capital gain, as well as holding out the prospect of yields of between 7 and 11 per cent, until we choose to sell them. The ordinary shares would be described as aggressive (Beta values over one, see below) and outside our investment strategy of defensive stocks with good dividends that we reinvest. At our age it’s a sensible policy to follow.

Beta values are a way of measuring how the price of a share responds when the index moves. So if the Beta value of a stock is over one, its price will rise or fall by a higher amount than the index. If the Beta value is less than one, the price of the stock will rise or fall by a lower amount than the index. If the Beta value of a stock equals one, the share price will mirror the FTSE 100 index exactly. Our portfolio has a Beta of less than one, but yields around 4.6 per cent to compensate for its expected lower capital gains.

Let me know your thoughts on what I’m doing and your own investment issues.