Father Christmas didn’t just bring toys and chocolates to the Johnson household, he also pinned share certificates onto the Christmas tree.
As a child, Matthew Johnson felt a “sense of disappointment" when he opened these envelopes but, now in his 40s, is grateful that it gave him an interest in investing that’s lasted ever since.
Matthew’s father bought share certificates in utility companies, which he gifted to his children. These proved to be astute investments and Matthew still exchanges investment ideas with his father to this day.
Matthew, who has had a career in the RAF and is now a commercial pilot, is keen to encourage his own two sons to save and invest for the future. He says: “My sons, Oliver and Charlie, both have Junior Isas, which their grandparents very generously contribute to each year.
“They should have a useful sum by the time they get their hands on it, although it will come with some stipulations. I think my parents would like to see it get them onto the property ladder when the time comes.”
Matthew is also planning to invest into a children’s self-invested personal pension (Sipp) for each of his sons. “At the moment we are paying prep school fees but next year, once Charlie starts grammar school, I’ll look to divert some of the money previously spent on school fees into their pensions,” he says.
Matthew plans to invest this in a low cost pension product with Vanguard, which will be target-dated to their estimated retirement age. These target date funds aim to “de-risk” by gradually shifting assets from equities into lower-risk bonds as investors draw closer to retirement age.
Investing to Retire Early
When it comes to his own investments, Matthew manages an Isa and Sipp for both himself and his wife, Caroline, who works as a food technologist. These are held with AJ Bell.
“Our aim is to build a decent sum in our Isas to facilitate an early-ish retirement and a possible relocation to or second home in France in about 10 years,” he says, “In the short-term, it provides resilience and security should we need it.”
Matthew puts a lump sum into his Sipp at the end of the tax year to keep his salary below the income-tax taper. He balances this with regular overpayments into his work pension to ensure he stays within the tax-free annual pension allowance. He then pays a variable sum into his Isa from any surplus savings that year.
“For many years the financial rigours of saving for a house and having children restricted us to a simple savings account followed by a mortgage,” says Matthew, “We had Isas but we took money out as often as we paid it in to cover the cost of renovating and extending our 200-year old farmhouse.”
But now that the children are older, Matthew, who lives in Grantham in Lincolnshire, is able to put more significant sums into these Isas. He invests in a mix of funds and direct shareholdings, trying to choose low-cost funds where possible. However, if a fund has a good performance track record is happier to pay higher fees for an active fund manager.
Matthew has tried to build a diverse portfolio, and most of the funds he holds have performed well in recent years. His best-performing holdings include the investment trust Scottish Mortgage (SMT), which is up by 59% since he first invested. Matthew has also seen a return of 45% on his holding in European Opportunities Trust (JEO) and a 46% return on River and Mercantile Global Recovery.
Scottish Mortgage has a Gold Morningstar Analyst Rating and five-star rating. The trust, managed by the long-term global growth team at Baillie Gifford, focuses on identifying high-growth companies and holding them for the long term to enjoy the benefit of compounded growth. Many of the holdings are often new entrants or disruptors into a region or industry. Morningstar analysts say: “With ongoing charges of 37 basis points, this strategy is exceptionally competitive among its category peers for very active management and, in our view, a unique approach to investment in today’s world.”
European Opportunities Trust is another highly-rated trust, with a Silver Morningstar Analyst Rating and five-star rating, reflecting strong performance against peers in recent years.
This trust is managed by Alexander Darwall formerly a fund manager at Jupiter. Darwall recently set up his own investment company, Devon Equity Management, which took over the running of this trust in 2019. However, Morningstar says it does not expect the portfolio, or the investment approach to change significantly, as the manager remains the same.
Focusing on Funds
While most of Matthew’s portfolio of around 10 funds has delivered positive returns, at present he is sitting on losses in Aberdeen Standard Equity Income Trust (ASEI) and his holding in the iShares MSCI Mexico ETF is down by 10% since he first invested. But some volatility is inevitable, particularly in higher risk, single-company funds, he points out.
Returns have also not been so buoyant in his individual stock holdings, and Matthew has been trying to rebalance his Isa and Sipp away from individual shares to focus more on funds. “It’s hard to say overall how this part of my portfolio has performed as I’ve bought and sold so many shares,” he says. “On balance, I’ve probably broken even overall with some eye-watering returns and losses in equal measure.”
One of the lessons he has learned from this, however, is to set up and maintain stop losses: “If I had done this, I would definitely be further into the black. I rode too many shares down the slope and past the point of no return,” he admits. “It’s tricky though, as stop losses time out after three months so it can be time-consuming maintaining them, but I do think it’s an essential part of investing in stocks directly.”
In the year ahead, Matthew is concerned that a global recession could have a negative impact on his portfolio. Currently around 90% of his portfolio is invested but some of this is in gold, which he hopes will provide some ballast in times of volatility. He is also considering investing in bonds for the first time. “This is mostly down to a lack of experience in that area. I’ve looked to fill this void more recently, but their yields now seem particularly poor so I’m nervously watching that space for now,” says Matthew.
“It’s hard to know if I have that balance right. It’s a tricky balance between holding capital to invest at the right time and potentially missing the boat if the markets continue to perform. I guess you only really know with hindsight if you’ve made the right decision.”
