Getting to grips with finances can be challenging for many university students, but Jess Ives — who is now 24 — had a handle on money matters from an early age.
Her parents opened a Junior Isa for her several years ago and when she turned 18 she took control of the account and converted it from a Cash Isa to a Stocks & Shares Isa. “My dad got me into investing and taught me which articles to read and what to look out for when choosing shares and funds,” says Jess. “At university I spent time reading the Financial Times and invested small amounts in several different shares.”
Today Jess lives with her partner in West Sussex and still regularly invests into this stocks and shares Isa. She has also opened a Lifetime Isa as well as starting saving into a pension. She puts around 18% of her salary into the pension, and splits the rest of her disposable income between monthly spending and her Isas.
Start Investing Young to Retire Early
Jess, who now works in financial services, says: “I know how important it is to invest for the future. I am trying to make sure I have enough money in my pension to hopefully be able to retire at 55 The earlier I start to invest hopefully the quicker I will reach my goal, although this does depend on market performance.”
Lifetime Isas are a cross between pensions and ordinary Isas, which can be opened by those aged between 18 and 39. Individuals can put £4,000 a year into the accounts and the government pays a 25% bonus on contributions, which is broadly equivalent to basic rate tax relief on pensions. Savers can access these funds to purchase their first home, otherwise the money must be used for retirement.
Jess says: “I try to invest the full £4,000 at the start of every tax year - the government bonus on this is just too good to miss.” If Jess makes this maximum saving, this means she if effectively getting a £1,000 top up on her savings each year.
Jess is using the account to save for a deposit for a property, and opted to invest the money in the stock market rather than put it in cash - she estimated it would take at least five years for her to build up enough money for a deposit, allowing her time to withstand some stock market volatility.
Jess adopts different levels of risk for these various investment accounts. She is more cautious with the Lifetime Isa, for example, as she will want to use the money relatively soon, and more adventurous with her pension investments, which she won’t be accessing for many years.
She adds: “More importantly, I make sure my portfolio is diversified across sectors within equity, bonds and property.”
Investment Trusts Have Delivered
When it comes to her fund choices, she says some of her most successful holdings have been investment trusts. In recent years she says she has seen decent returns from both Scottish Mortgage Investment Trust (SMT) and Finsbury Growth & Income (FGT).
Scottish Mortgage has a coveted Gold Morningstar Analyst Rating and is run by Baillie Gifford’s James Anderson. He and co-manager Tom Slater have considerable experience and focus on identifying high-growth companies and holding them for the very long term to gain the benefit of compounded growth. These companies will often have been new entrants or disruptors into a region or industry. The trust has delivered staggering annualised returns of 19.99% over the past 10 years.
Morningstar points out that the nature of this high-growth portfolio means it has a bias towards tech, healthcare, and internet-related consumer cyclicals, so is likely to be volatile. But for long-term investors like Jenny, looking for growth this may not be a problem.
Finsbury Growth & Income has a Silver Morningstar Analyst Rating and a five-star rating, reflecting both its strong performance in recent years and Morningstar analysts’ confidence in the process and management structure will continue to deliver for investors.
The trust is managed by the highly rated manager Nick Train, who recently added the first new names to the trust's portfolio in three years. Morningstar analyst Peter Brunt says: “This trust still benefits from a highly experienced and long-standing manager and a unique, well-structured investment approach." It has delivered annualised returns of 15.1% over the past 10 years.
But not all of Jess’s investments have delivered such strong returns as these two trusts. One of her first forays into the stock market was to buy Vodafone (VOD), which she still holds. She says: “This share has paid decent dividends, which I have reinvested, but I am currently 38% down on my original investment. The company does seem to have quite a weak balance sheet so maybe I should have sold it a while ago.
“However luckily I only hold a very small amount, as it was one of my first purchases. Fortunately it has not put me off investing as I have seen much better returns elsewhere.”
Focus on Fees
When it comes to choosing funds, low fees are important and Jess is wary of pricier options where the high annual charge can eat into returns over the long term. She adds: “However, I would pay extra for a fund manager who has a good track record and has managed a fund well.”
Currently her focus is on the growth of a fund and its track record rather than its approach to ethical investments or sustainability, but she says: “I have looked into ethical approaches more recently, as they seem to have become increasingly popular over the past few years and many have strong performance record.
“I believe this will become more important in the years ahead and think the majority of funds out there will adopt sustainable and/or ethical mandates in the next decade, particularly in response to issues like climate change.”
