Charlie Musson isn’t relying solely on his pension for his retirement. He’s also investing in an ISA portfolio and has a number of buy-to-lets.
Retirement is still 20 years away so I’m taking a long-term view and a high level of risk with my investments
He says: “I think this three-pronged approach enables me to utilise the main tax allowances that are available, and should allow me flexibility and options when it comes to drawing an income in retirement.”
Musson takes a similar investment approach with both his SIPP and his ISA. “They are both invested for my retirement, so I view them as one and the same. Retirement is still at least 20 years away so I’m currently taking a long term view and a high level of risk. I anticipate adjusting this balance and moving more towards bonds and property as I get closer to my retirement.”
When it comes to both his SIPP and ISA, Musson – who works in financial PR – says he is conscious that investment costs can eat into returns.
Lower Investment Costs Will Boost Overall Returns
“I try to keep costs in my SIPP to a minimum in a number of ways. Holding direct equities is very cost effective because there is no annual fund charge to pay. I also use tracker funds to keep costs low, particularly in markets where I’m not confident to pick stocks or active fund managers. About two thirds of my SIPP is invested in direct equities and tracker funds, in roughly equal measure.”
He says he uses tracker funds to invest when investing in emerging markets and Europe. However, he does use collective funds – particularly with some of his UK-based investments. He says he likes to look for managers who have outstanding track records. He has funds that are focused on both growth and income, but says he tends to veer more towards investment trusts, again because of lower charges.
Picking High Quality Funds Managers
For example, he currently holds Scottish Mortgage (SMT) for long term capital growth. This Gold-Rated investment trust has a focus on technology stocks. It is run by veteran manager James Anderson, supported by Tom Slater. Morningstar analysts describe this trust as “one of our favourites for global equity exposure”.
Musson also likes the Nick Train as a fund manager and holds both the Gold-Rated Finsbury Growth & Income Trust (FGT) as well as his Lindsell Train Global Equity Fund.
For exposure to smaller companies he holds Standard Life’s UK Smaller Companies Trust (SLS) – which also has a Gold Rating from Morningstar. Daniel Vaughan, an analyst at Morningstar says: “We think this is a strong offering. Fund manager Harry Nimmo remains a key strength. He is an experienced small-cap investor who has managed money this style through a variety of market cycles.”
Musson also holds Woodford Equity Income fund – run by the experienced manager Neil Woodford – as well as his newly launched investment trust: Woodford Patient Capital (WPCT).
While these all make good core holdings in any retirement portfolio, Musson says some of his best gains in recent years have been on direct shareholdings.
Strong Profits From Unloved Banking Stocks
He says he bought into banking stocks in 2009, when prices had plummeted thanks to the unfolding financial crisis. But buying low has worked, and many of these holdings have performed well since. He says: “I bought Lloyds (LLOY) for around 30p per share, and it is hovering around 70p today. I continue to hold it, in the expectation of good dividend yields over the next decade or so. I also bought Barclays (BARC) for around £1 a share at the same time, and sold for double this amount in 2014.”
Not all of his shares have performed so well though. He says: “I hold a couple of small oil companies that have been hammered by the fall in the oil price. Genel Energy (GENL) for example is showing a 40% loss in my SIPP but I always intended it to be a long term investment so am planning to hold on to it and hope that the oil price will eventually increase.”
Musson says around 70% of his investments are in his pension, with a third in his ISA. He has consolidated previous personal pensions and workplace pensions into a SIPP with AJ Bell, his current employer.
Buy-To-Let Still Looks Attractive
Elsewhere Musson says he has invested in a number of buy-to-let properties in Southampton with his wife. “Our aim was for a buy-to-let portfolio to account for about a third of our income stream in retirement.
“We have four properties in Southampton which is still relatively affordable and has a steady stream of tenants from the university, two hospitals, retail park and businesses in the area.”
But he says the latest Government reforms – which have increased stamp duty on second homes, and lower the amount of tax relief private landlords can claim – may mean these plans are reassessed in future.
“We bought them all before the Government reforms and will now wait and see how they bed in before we decide whether to do any more. There is no doubt that the changes give buy-to-let investors plenty to think about but for our existing properties they won’t have a huge impact.”
