Jonathon Morris says he hopes his investment portfolio will enable him to retire early.
Jonathan, who works as a facilities manager, is in his early 50s and is hoping to retire in the next 10 years if possible. He hopes that he can take an income from his Isa portfolio to subsidise his work pension for a few years until his state pension is paid.
Jonathan has been an investor for around 30 years, but he started to take it “a bit more seriously” around 10 years ago.
“I have predominantly invested directly in shares. This started after I received shares in Halifax, Alliance & Leicester and Bradford & Bingley after these building societies floated on the stock market in the 1990s.
“I made good returns on them initially, but didn’t really see them as long term investments — more as a free windfall. I held the shares for a few years, then cashed them in and used the proceeds to help fund holiday and home improvements.”
Jonathan says the financial crash highlighted how volatile these financial shares could be too. “Up until then I had owned quite a few banking shares. They seemed like a fairly safe bet, but this showed me there was no such thing as a completely safe bet.”
Despite suffering some losses in the resulting stock market turbulence, he still made more money from his portfolio than his cash savings.
“During the same time I had a cash Isa. The interest rate paid on this just collapsed, and to be honest it has been impossible to get a decent paying savings account since. I have concentrated on shares and investing ever since.”
Despite this turbulence he still holds a number of financial companies in his portfolio. These include holdings in Lloyds Banking Group (LLOY) and the insurance companies Aviva (AV.) and Legal & General (LGEN).
Lloyds has been a “steady" longer-term performer says Jonathan, although its share price has slipped over the past five years. According to Morningstar, investors have seen total annualised returns of just 0.86% over five years, which significantly less than the 4.89% annualised returns delivered by the FTSE 100 over this period.
Morningstar analysts says: “Lloyds is a pure UK banking play with 95% of its assets based domestically. Since its massive restructuring which started in 2011 the bank has emerged as a low-risk domestic and retail commercial bank.”
Morningstar says that it has shed billions in riskier assets and has significantly reduced its dependence on wholesale funding. As a result it says Lloyds operates “one of the strongest retail franchises in the UK" and its shares are undervalued.
Insurance Stalwarts
Aviva is another stalwart of the UK financial services sector. However Jonathan says it has been “a bit of a bumpy ride” with Aviva over the past five years, with quite significant share price movements, he has still seen a positive return on his investment.
According to Morningstar data, investors in Aviva have enjoyed total annualised returns of 6.28% over the past five years, outperforming the FTSE 100.
Jonathan says he is pleased with the recent announcement from management that it will be returning more capital to investors, via dividends and share buyback.
Legal & General has been one of the best performing financial stocks in Jonathan’s portfolio. The financial services group – which is involved in investment, pensions, and insurance – has delivered total annualised returns to investors of 10.97% over the past five years, and 14.66% over 10 years.
Jonathan has been trying to look at longer term trends as a way of boosting his portfolio. He says it is easy to fall into the trap of simply buying shares that have performed well, without looking at their future potential.
“I perhaps have done with with some financial stocks in the past. But I have more recently had my finger burned by investing in a number of high street retailers. There has been a huge change in shopping habits, a trend I should have perhaps seen earlier.”
One of his heaviest losses has been an investment in the high street bakery Patisserie Valerie. This company went out of business and has been subject of financial investigation after accounting irregularities.
Jonathan says it is hard to spot potential fraud as an ordinary investor but says he should have realised the high street is a place of decline. “There have been a few other investments that went wrong but these were my fault for failing to acknowledge the direction of things.”
While he has initially bought company shares, he started to diversify into investment trusts. “I like the way that these are basically structured like a share and listed on the stock market, but they seem to me a good way to get exposure to overseas markets.
“I have bought shares listed on the Dow Jones for example, but buying shares in Japan or India can be a daunting prospect.”
Investment Trust Holdings
Some of his more successful investment trust holdings have included the global investment trust Monks (MNKS), run by the Baillie Gifford team. This trust has a Silver Rating from Morningstar.
Morningstar analysts say this trust has many positive attributes including an experienced management team, broad analytical resources, and a disciplined approach. Over the past five years it has delivered total annualised returns of 23% to investors (based on share price).
More recently Jonathan says he has also seen “fantastic” returns from his BlackRock World Mining investment trust (BRWM). This trust invests in mining and metal securities. According to Morningstar data it has delivered total annualised returns of 20.11% over the past five years and a staggering 50% return over the last 12 months.
Jonathan, who lives in Hampshire with his wife says: “I think diversification is the key. I want to invest in newer and greener technologies, and will look to build up this within my portfolio. Mining may not be a particularly ‘green’ industry but we need many of these metals, particularly in things like batteries for electric cars.
“I hope that BRWM will be a trust that will hopefully continue to deliver, even if the metals and natural resources being mined change over time.”
