Retired investor James Ince is looking for investments to pay a healthy income throughout his retirement. He has a SIPP, and investment ISA and some direct shareholdings, all of which have a regular pay-out.
Ince, who is in his early 70s, says: “In an ideal world the income generated from these investments would cover our monthly outgoings, but this doesn’t always happen.
“Sometimes we dip into the capital but as the investment growth has been so good, this has not been a problem.”
Ince worked in the IT sector as a chief operating officer, and retired a number of years ago. As he is no longer working, he is not contributing to these investments although he does buy and sell holdings within the portfolios.
In addition to these self-managed investments Ince has a small final salary pension and the State Pension. His wife, who worked for the NHS, has a “decent” pension, he says.
“We take a regular income from our SIPP as part of a drawdown plan,” he adds. “However, we would hope that the residual capital will form part of our estate and there may be some surplus funds to leave to our children and grandchildren.”
This will depend on future investment returns and the couple’s income needs.
“Our health is still good at present, but we are well aware that this could change,” Ince says.
“For tax reasons it seems to make sense to run down the ISA first and leave the SIPP intact for as long as possible. If there are surplus funds these hopefully won’t be subject to inheritance tax.”
Backing a Familiar Sector
Given his background in IT, it is not surprising that Ince has a number of investments in this sector.
One of the better ones has been his investment in the Herald (HRI) investment trust. This is a global trust investing in smaller quoted companies in the technology, telecommunications and multimedia sectors. It is managed by Katie Potts.
Ince says that this has delivered good long term returns for him. According to Morningstar data, its shareholders have seen annualised returns of 17% over the past 10 years.
Ince says: “Many people might think that technology stocks are higher risk for a retired investor. But they have delivered good long term returns, which is my main focus.”
Elsewhere, this interest in the technology is reflected in some of his direct shareholders. This include, for example, XP Power (XPP). XP Power is a UK-based electronics company involved in the development and manufacture of power control components.
Shareholders have seen total annualised returns of 24% over the past five years according to Morningstar data. This business has comfortably outperformed the 6.9% total annualised returns delivered by the FTSE 100 over this period.
Steady Stocks Provide Ballast
Ince says that these higher risk investments are balanced out by some “safe and steady” ones, including a couple of core equity income funds. These include those focused on both the UK and global markets. One of his longer terms holdings has been Invesco Perpetual High Income.
This fund has a Bronze Rating from Morningstar analysts.
Peter Brunt says: “This fund benefits from an experienced manager in Mark Barnett, who is providing a steady hand, despite his increased responsibilities and assets under management.”
Barnett has been at Invesco Perpetual for more than two decades, and took over management of this fund in 2014.
Brunt adds: “Overall we consider the team settled, well-resourced and of good experience. Barnett’s approach has seen him find more of his stock ideas among mid- and small-cap than peers and the FSTE All Share benchmark. Investors should be aware that this can result in short-term periods of volatility although this has proved beneficial over the long term.”
