Julie-Anne Gage, from Leeds, Yorkshire, understands the value of having cash savings, alongside higher-risk investments.
She says: “I was made redundant in 2007 at the start of the last recession and ended up working on shorter-term contracts for a couple of years.
“I now make sure I have sufficient savings to cover the mortgage repayments for a year or two, in case the economy hits the rocks again. I want to know my home is safe and I can get by doing temp work if necessary.”
To this end she has a series of cash savings accounts, which include a cash ISA, paying less than 1% interest, two regular savings accounts, paying 5% and 2%, plus a high interest current account which pays 5%.
There are limits on how much can be saved into these higher paying accounts, but Gage actively drip-feeds money to get the best rates.
Share Picking to Pay for Education Costs
Gage’s main investments are via her company’s share save scheme. Gage, who works in credit management, has managed to build up a substantial sum in this scheme over the past three years.
She says: “I put in the maximum allowed each month. The company gives you a free share for every two you buy. There is a minimum holding period but you are immediately eligible for dividends.” This is one of the main attractions of the scheme for Gage, who has selected high yielding stocks.
“If current dividend yields continue these dividend payments will match what I have put into the scheme over a five-year period,” she explains.
Gage is planning to hold these shares over the long term in the hope this income stream will make a contribution towards the cost of education when her daughter is older.
Her daughter is currently two-years old; nursery fees – at £1,000 a month – currently take a sizeable chunk out of the family budget. Gage is investing now to help with the cost of school fees once her daughter reaches secondary school age.
Equity Assets Balanced by Cash
This share save scheme has encouraged Gage to invest more widely, and she has opened a regular monthly savings account with AJ Bell to supplement her workplace savings.
Gage says that because she has reasonable cash savings, she feels she can afford to take more risk with this account, in the hope of achieving better long-term returns.
“I call this my pocket money account. I use a small amount of money each month to invest in the stock market. I’m trying to buy shares in companies I suspect will all be doing well in 10 years time,” she says.
Gage makes a list of companies she likes, and will try to invest when share prices dip.
“I am buying shares in Lloyds Bank (LLOY) at the moment. I also stocked up on the Morrison supermarket group (MRW) and Hays Group (HAS) when their share prices were low too.”
Lloyds has a four-star rating from Morningstar analysts, meaning they consider it to be trading below its fair value estimate of 84p.
Morningstar analyst Derya Guzel said recently: “Narrow-moat Lloyds, which has been our preferred name in the UK banking space, has delivered healthy full-year results.”
Guzel points out that Lloyds is very focused on its domestic market with 95% of its assets based in the UK.
Guzel warns that the UK’s decision to leave the EU could affect the bank’s operations, but adds that after its massive restructuring, which started in 2011, the bank is well-placed to weather any short-term volatility.
Morrisons has a three-star rating from Morningstar equity analysts, meaning they consider it to be fairly valued.
Equity analyst Ioannis Pontikis says: “Although operating margins in the industry are similar among the big four supermarkets, we believe Morrisons has a more efficient operating cost structure than Tesco and Sainsbury’s. Further, the first has a stronger balance sheet than its big four peers, with no pension deficit and a higher percentage of store ownership.”
Pontikis adds that while the company has no convenience-store presence, its online channel is growing through its third-party partnership with Ocado. Pontikis adds: “Newly sourced deals with Amazon and McColl’s should ignite growth in the wholesale business, albeit off a low base.”
Gage says these both these companies have gained in value since she purchased them, and have also paid reasonable dividends. Gage reinvests the dividends paid the following month.
Stock Picks that Haven’t Shone
But while these shares have performed well of late, not all her investments have done as well. Gage says: “I’ve made a few bad buys. Debenhams (DEB) was an early flutter and I should have sold while they were up.”
Gage bought these shares at 50p and saw them rise to 75p before they fell back again. They are now trading around the 20p mark. She says: “I’m glad I’ve used my pocket money account for this. It has taught me that companies linked with the fashion trade are high risk investments, as they are vulnerable to trends and fluctuations in consumer spending. I’ll treat similar shares with caution.”
