Terry Smith: Operates on the principle that ‘you buy good companies, don’t overpay and do nothing’
Tax relief on pension contributions seems set to be slashed in what we now know will be a ‘painful’ Budget.
This measure will particularly damage the prospects of many people in their 20s, 30s and 40s.
These individuals need to invest as much as possible for retirement since newer-style company and other pension plans do not supply guaranteed generous payouts.
A comfortable later life is an expensive commodity – and will be even more costly in years to come.
At present, a single person aged 65 who aspires to a comfortable lifestyle requires a pot of £790,000, as an analysis from broker AJ Bell reveals.
This is on top of the basic state pension – which may not exist in its current form three or four decades hence, making saving now even more of an imperative.
Some investors, however, are already taking action to counter the Budget threat.
Data from the Interactive Investor platform shows that clients between the ages of 18 and 45 are stashing money away in shares and stock market funds and investment trusts – with stakes in a wide range of firms which makes them an ideal way to set cash aside for a fun-packed retirement.
Anyone who is thinking of joining this movement can opt for funds that are solid rather than racy, or take a more exciting route, with extra hazards, but also the chance of bumper payouts.
If you want to sleep easy, but also live a little dangerously, a mix of the two may be the perfect blend.
Safety first choices
The portfolio of the Alliance Trust contains ‘the best ideas from the world’s best stockpickers’. This description comes from Craig Baker of Willis Watson who oversees this global trust.
Under his aegis, the selection of investments is contracted out to 10 different teams of managers, each charged with delivering capital growth and rising dividends in their sector.
This approach has produced a return of 69.3 per cent over the past five years, against 39.5 per cent for the average global trust. In the autumn, Alliance – which was set up in 1888 – will merge with Witan, a trust founded in 1909. The combined trust may then join the FTSE 100.
As a result of this promotion, the trust’s discount (the gap between its share price and its net asset value) may narrow from its current 5 per cent. In the meantime, you are buying your way into these assets for less.
Nick Wood of Quilter Cheviot sums up the appeal of Alliance: ‘It provides good diversification – while providing investors with confidence that they are not investing in the riskiest of assets.’
Fundsmith is a global fund aimed at those who like to keep things simple. The manager Terry Smith operates on the principle that ‘you buy good companies, don’t overpay and do nothing’.
Aidan Moyle of Hargreaves Lansdown says that since 2010, Fundsmith has performed well, returning 584 per cent compared with 403 per cent for its benchmark, the MSCI World index, and 250 per cent for the average fund in the sector.
Although lately the fund has lagged thanks to its lack of tech stocks, Smith and his team supply a special kind of expertise – which is why I am one of the Fundsmith faithful.
By contrast, the JPM Global Growth and Income trust does own some US tech stocks, but it also backs large European groups like Nestle.
All holdings are selected on the basis that their profits are growing faster than the market average. Wood highlights the trust’s ‘very strong track record’ which is one reason its discount is a tiny 1.25 per cent.
Thrillseeker options
The Scottish Mortgage Investment Trust focuses on ‘transformational trends’ in technology, a strategy that produces some lows. This week shares in the Chinese e-commerce platform PDD, one of the trust’s largest stakes, have tumbled by 35 per cent.
But there are highs. Luxury car maker Ferrari continues to advance, having already risen by 45 per cent since January.
The discount on this trust – my bet on innovation – is 9 per cent.
Dan Boardman-Weston of BRI Wealth Management suggests the slightly less hair-raising Liontrust Global Innovation Fund.
Its portfolio includes Nvidia and other so-called ‘Magnificent Seven’ tech stocks.
For youthful investors with more time on their side, Dan Squires of online trader Saxo UK suggests the Seraphim Space Trust which funds space-related ventures, particularly those trying to solve the challenges of climate change and sustainability.
James Carthew of QuotedData analytics says Seraphim Space’s discount has narrowed – albeit to 41 per cent – and that the trust could be ‘an interesting ride’ for those with strong nerves.
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