Sarah Coles started investing earlier than most. Her first investment, in British Gas shares, was when she was just 12 years old.
These dividends provided a welcome boost to her finances
She explains: “I’d been saving up for a ridiculously expensive cuddly ET. The film was in the cinema and I wanted to toy to go with it. But my dad persuaded me to buy British Gas shares with the cash instead as the company was in the process of floating on the stock market.”
Being 12 she could not invest directly, but her father bought her these shares through a bare trust, and encouraged her to take an interest in them.
She says: “I was convinced by the argument that if I still wanted the cuddly toy in a couple of years I could see what the shares were worth, and decide if I wanted to sell them. By then though I’d had a few dividend cheques already and didn’t want to sell.”
Coles, who is now in her 40s, says she has stuck with British Gas through several incarnations. It subsequently split into Centrica (CNA), National Grid (NG.) and BG Group, which was more recently acquired by Royal Dutch Shell (RDSB).
As a result, Coles now owns shares in Centrica, National Grid and Shell. “Together they are worth about 10 times my original investment,” she says. But the real gain has been from the dividends she’s received over the past 30 years. She has reinvested some of these gains, but points out that during the “leaner student years” these dividends provided a welcome boost to her finances. “On some occasions it ensured I was able to pay for curry night.”
The Importance of Dividends
This early introduction to investments has served to highlight the importance of dividends. She says she tends to favour funds that pay a reliable income, but she is also a fan of fund managers who can demonstrate a good long-term track record.
One of her best performing investments has been Scottish Mortgage (SMT) investment trust. She says: “I picked Scottish Mortgage because it’s a high conviction investment, which as had excellent long-term results.”
Coles, who lives in Bristol with her husband, and their two children, says she first invested in this investment trust seven years ago. Initially, this was as a regular investment for her children. She says the growth has been impressive.
This investment trust is managed by the long term global growth team at Baillie Gifford, headed by James Anderson. The trust has a five-star rating and a coveted gold medal from Morningstar, reflecting their analysts’ confidence that it will continue to outperform.
Morningstar analyst David Holder says: “This fund is exceptionally competitive among its category peers for very active management and in our view a unique approach to investment in today’s world.” He points out it also has a substantial exposure to unlisted equity investments.
Star Fund Managers for Income
Elsewhere, she says she has invested in funds run by star fund managers Nick Train, who runs Lindsell Train Global Equity Fund and Neil Woodford, manager of Woodford Equity Income.
Lindsell Train Global Equity also has a five-star rating, reflecting its strong performance compared to peers. The fund is run by the highly-rated manager Nick Train. The UK version of this fund has a Morningstar gold medal rating. He runs a number of funds that follow a similar approach: investing in a concentrated portfolio of companies that offer a high and sustainable return on equity, and are cash generative.
Morningstar analysts describe Train as a “seasoned and talented equity manager”. It adds: “Train’s process has proved successful over a number of market cycles.”
Woodford Equity Income has a Silver rating. The fund currently has a two-star rating, reflecting the fact the manager Neil Woodford has struggled to outperform this year, relative to peers.
This relatively poor short-term performance has caused the manager to issue a recent apology to investors. However, analysts at Morningstar point out that this should be seen against Woodford’s longer-term track record.
Analyst Peter Brunt says: “This fund is managed by one of the most talented fund managers in the equity-income sector at an investment boutique that focuses primarily on UK equity-income.
“Neil Woodford applies the same investment approach with which he created an impressively strong and consistent track record during his near three decades at Invesco Perpetual.
“The fund is unconstrained against its benchmark and managed with a total-return mind-set, with a keen eye on capital preservation. As such, investors should be aware that there may be periods where the fund is not always the highest-yielding relative to peers.”
Saving for the Next Generation
Coles, who now works as an analyst for Hargreaves Landsown, says that as well as saving for her children, she also has her own ISA, and is in the process of consolidating her pensions into a Hargreaves Lansdown SIPP.
She says: “It’s impossible to tell what the student loans or graduate tax system will be by the time my kids finish school, but I would like them to be in a position where they can fund a big chunk of their fees upfront if they need to.
“If they don’t go to university, or it doesn’t prove cost-effective to pay in advance, I’m hoping it will help them onto the property ladder.”
Coles says one of her biggest disasters, when it comes to investing, is not saving enough into a pension at an earlier age. She explains: “Just after I started my first job my dad told me to start saving what I could afford into the company pension scheme, and never stop. Unfortunately, by then I’d stopped taking his excellent advice.
“I didn’t save enough. Then I had children and worked as a freelancer for many years and during this period, like many women, I neglected my pension savings. I’m kicking myself now for missing out on so much compound interested. But I am still only in my 40s so I’m doing my best to boost the pot.”
She says she invested monthly into the savings accounts for her children and into her pension. “Everything else tends to be one-off investments. I think this may be partly because I was a freelancer for so long; I’d only really be confident the cash was spare for investments a couple of times a year.”
