Jeremy Pagett is looking to maximise the value of his investment portfolio over the next 10 years in order to secure the best possible retirement.
He says: “I’m currently in my mid-50s. Initially I was hoping to retire at 60 but realise this isn’t now realistic. I’m hoping that by focusing on my investments I can stop work for good by the time I’m 65.”
Pagett works as an IT consultant, working on a contract basis. He has worked for a number of financial companies in the past and this helped ignite his interest in investing.
Pagett utilises a SIPP wrapper in order to maximise returns and minimise his tax bill. “In the past, when I was in full-time employment I tended to put any surplus savings into an ISA. I also had a work pension, but didn’t really take too much notice of where it was invested,” he said.
“Now that I am working for myself, I have focused my savings into my SIPP as these benefit from tax relief. This seems to be the most sensible way to boost my overall savings.”
Pagett says he’s been “delighted” with the recent changes to pension rules, which means he has far more freedom about how he uses these savings.
He is considering using the tax free lump sum he can withdraw from his pension at 55 to help his daughter get on the property ladder.
He adds: “In the past, I always assumed I’d have to buy an annuity with my company pension which never seemed particularly attractive.
“I’m hoping to keep my company pensions and SIPPs invested and draw an income from them when I eventually stop working.”
Mixing Stocks and Funds to Maximise Returns
Pagett invests in a number of funds, plus some individual shareholdings, which he hopes will boost overall returns.
“I’ve tended to invest in smaller company shares. I know these are inherently more risky, but if I get it right this has the potential to deliver superior returns.” Pagettt balances this risk by ensuring the bulk of his portfolio is in “rather more steady sounding” funds.
One of his best investments has been in Cranswick (CWK), the food wholesaler. This company sells fresh and other premium products to retailers and other food outlets.
Pagett first invested in this company about three years ago when shares where price around £13.21. He says: “They had already enjoyed quite a boost over the previous year, but this seemed like a really well-run company and an interesting proposition. I was a bit worried that I’d missed out the main gain, but it seemed a good long-term holding. It is now priced at £32.50."
According to Morningstar data, investors in this company have seen a 35% return on their money over the past three years. Over the last year alone shares have increased by 43%.
Less Successful Investments
Not all shares have produced such buoyant returns though. Pagett has been disappointed with his holding in Tesco (TSCO). Pagett invested in 2013. “The share price had already fallen moderately, partly because the supermarket faced increased competition from the newer discount supermarkets, like Lidl and Aldi,” he said.
Pagett says this seemed like an ideal time to buy, as shares were considerably lower than they had been prior to the credit crunch. However, a couple of months later the supermarket was embroiled in an accounting scandal and share plunged lower.
Pagett bought into Tesco at around 340p, but saw shares fall to a low of around 143p. He says: “It didn’t seem worth crystallising this loss. They have recovered slightly, but are still well below the price I paid for them. Still the trading updates have been more positive recently so I am hoping this still might pay off over the long term.”
Fund Picks for a Pension Portfolio
When it comes to funds, Pagett says one of his best holdings to date has been Fundsmith Equity. It’s not hard to see why sales have been buoyant: the fund has outperformed many of its peers, and has a five-star performance rating as well as a coveted Gold Analyst Rating.
Morningstar analyst Peter Brunt says: “This is one of the strongest options for investors seeking exposure to high quality global equities.” He describes the fund’s manager, Terry Smith as “an original thinker” who has often demonstrated his willingness to bet against the crowd.
Brunt says: “Smith's investment philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value.
“High-quality companies are defined as having little need for leverage, an above-average cash return on operating capital employed, and an ability to sustainably grow at this rate of return.”
This has certainly been a sweet spot for the fund which has delivered annualised returns of 22.8% over the past five years.
Pagett says: “I have only been invested in this fund for a couple of years. I wouldn’t expect such stellar returns to continue, but I’m hoping it will be a steady part of my portfolio for years to come.”
A handful of tracker funds supplement the portfolio, which invest in most of the major stock markets, including the US, Japan and Europe. He says these are a combination of Vanguard and HSBC tracker funds. Both management houses are rated highly by Morningstar analysts.
He also has “a substantial holding” in a number of equity income funds, including Invesco High Income, which has a Bronze Rating. He says: “This is one of my older holdings, I’ve been invested for 15 years or more. I initially invested through an ISA, but now also have a holding in my SIPP.”
Brunt says: “This fund benefits from an experienced manager in Mark Barnett, who is proving a steady hand despite his increased responsibilities and assets under management. Barnett has been at Invesco Perpetual for over two decades. In March 2014, he took over the management of this fund from Neil Woodford, who had departed the group.”
Pagett says: “I am aware a lot of people switched when the previous manager left, but I’ve kept my holding. It has done well since.
“I don’t tend to switch funds, or sell shares very often. If something isn’t doing as well, I tend to hold it, but may divert future contributions into alternative holdings.”
