Jan Richards hasn’t slowed down in her retirement, and doesn’t expect her investments to either.
The retired accountant and her husband, who live in North London, have built up a portfolio of SIPPs and ISAs over the past few decades, which has helped them to retire early.
Although she is now officially retired Jan still works a day-and-a-half a week for a charity. “I’m involved in doing their accounts and helping out at one of the food banks they run. It is good to be able to put my skills to good use,” she says.
When it comes to their investments, the couple invest in a mix of income and growth assets. “We have some assets that are now more income based. These are useful particularly in our ISA as we can draw out the income earned tax-free.”
But these are balanced with a number of growth-oriented shares and funds. “We are still just in our mid-60s and we want this capital to support us for the next 20 to 30 years. For that we need it to grow in value. If we just take an income it could be depleted, particularly in a market downturn.
“Switching everything into bonds or cash and living off the interest seems very short-sighted. We are happy to have higher-risk investments that have the potential to deliver future growth.”
Jan and her husband are also hoping to leave some assets to their grown-up children. As an accountant she is well aware that passing on pensions can be more tax-efficient, so the couple plan to use their ISA holdings first. However, they also have wealth tied up in their property which they may pass onto their children at a later stage.
Scottish Mortgage's Strong Run
One of their best holdings in recent years has been the investment trust Scottish Mortgage (SMT). This global trust focuses on high-growth companies, many of which are new entrants or disruptors in their industry or region. Morningstar analysts describe the investment strategy as a “hyper-growth mandate” with the trust having a significant proportion of its assets in unlisted equities, which can significantly increase risk. Previously this unlisted element was limited to 25% of the portfolio, but this has increased more recently to 30% on the back of shareholder approval.
While this may be a higher risk investment trust, the management team at Scottish Mortgage have delivered high and consistent returns for investors. According to Morningstar the trust has delivered annualised returns of 28.86% a year (based on the share price) over the past 10 years and 36.18% over the past three year period. This consistency has helped earned the trust a Gold Analyst Rating from Morningstar.
Despite this fantastic track record, returns have been more modest over the past 12 months and the long-term lead manager, James Anderson is due retire in April 2022. But Jan is not too concerned about this short-term reverse.
“With all our investments we try to look to the long-term. There will always be ups and downs, but this has been a really excellent investment and I expect it will continue to deliver for us.”
Scottish Mortgage isn’t the only investment trust they hold. The couple have more recently also invested in Smithson (SSON), the investment trust launched by Fundsmith.
This has a similar growth focus to the company’s flagship Fundsmith Equity fund. But while Fundsmith Equity – another Morningstar Gold-rated fund – is primarily invested in large-cap companies the investment trust is more weighted towards smaller and mid-cap companies.
Jan says: “We had a relatively small holding in Fundsmith Equity, which has been another strong performer, but invested at the outset when this investment trust was launched.”
The trust, which has now been running for just over three years, has a 5-star rating from Morningstar, reflecting its strong performance relative to peers. It has delivered annualised returns of 21.94% (again based on share price) over this three-year period.
Direct Shareholdings
The couple also invest in a number of shares directly, and have investment and ISA accounts with several platform providers. These shareholdings include a number of shares listed on the alternative investment market (AIM), as well as larger blue chips.
Among these holdings are the drinks manufacturer Fevertree Drinks (FEVR) and blue chip shares such as Aviva (AV.), Lloyds Banking Group (LLOY) and the supermarket Sainsbury (SBRY).
Jan says: “Fevertree was a great buy initially and we had fantastic returns for a couple of years. But it has been a bit lacklustre since then.”
The company’s share price soared from 2015 to 2018, but declined over the next two years. However there has been more of an uplift from 2020 onwards. Investors who have held the share for 10 years have seen total annualised returns of 19.45% - but over a three year period this falls to just 2%.
When it comes to insurance companies like Aviva, or retailers like Sainsbury’s, Jan hopes these will provide steady growth. “These are well established companies that provide the goods and services we all need on a daily basis. I think of these as the backbone of our share portfolio. They will hopefully continue to grow in value and pay regular dividends. However it is good to invest in a few smaller companies to boost overall growth.
“In recent years investment trusts have seemed a good way to access these smaller companies and start-ups."
