Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Investor Diary: How I manage money in retirement
On an invested sum of £210,000, the return over two years on my SIPP and stocks and shares ISA active retirement portfolio of around 30 shares is 12.4% excluding dividend payments.
I have been documenting my investing experience in Shares since August 2020 and these articles have provided readers with an insight into how I try to make money from the markets and manage my investments.
Based on modest reading, I initially adopted a safety-first approach, investing in several biggish FTSE 100 shares that were expected to provide ballast to my portfolio. However, shares including Associated British Foods (ABF), BP (BP.) and Vodafone (VOD) have proved more hindrance than help and I am currently losing money on these stocks.
Nowadays, working out which shares to buy has become a more detailed process, with an increased focus on expectations of growth, revenue, profit, share price and dividends. From my perspective, key to analysis is tracking performance over time and gauging companies’ fundamental business contribution and outlook. I also now listen to investment podcasts and read the business press avidly, albeit with a critical and sometimes sceptical eye.
To develop a depth of reading, I concentrate on a few areas of interest, most particularly science and technology. I have invested in companies with a focus on battery innovation, hydrogen carbon capture and sustainable bio-energy alternatives.
If there is a new Telsa out there, I have yet to find it. However, trying to constructively respond to new global challenges is appealing relative to investing in areas in which I have less curiosity, such as leisure and retail.
Reading about personal investment plans fits in well with being retired. Most of my hobbies are outdoors – walking, cycling and gardening – so reading about investment adds a welcome balance to life. There is always something to do on a poor weather day.
Diversification is a sound guiding principle, to an extent. The argument for diversification is that holding a breadth of shares across many sectors provides stability and reduces excessive risk. However, more than half of my shares are losing money for me rather than making a profit. Thus, at some point diversification thinking needs to acknowledge the importance of performance.
I have begun making more substantial investments in selected companies which are making larger performance gains. So rather than each share contributing between 2.5% to 4% to the portfolio, I have larger investments in the winners with many now representing between 5% and 6% of the portfolio.
This has worked quite well for me through enhanced investments in names such as Croda International (CRDA), Drax (DRX) and Spirax-Sarco Engineering (SPX). If any of these stocks take a sharp downturn, my strategy might be to sell some but not all the shares. Most of these companies are in the FTSE 250 index. Exploring this mid-cap index and working out worthwhile shares to hold has so far been both interesting and rewarding.
As part of my ‘making up for lost time’ investment strategy, I have made no withdrawals from the portfolio. I am fortunate in being able to live quite well off my two workplace pensions. The intention is to retain the active nature of the portfolio and pass it on to my adult-age children. Tax is a complex issue in all of this but keeping the portfolio active appears a wise idea.
I intend to hold little money in cash savings in years to come. The challenge will be saving sufficiently to make full use of my stocks and shares ISA allowance each year. Any withdrawals are likely to be for hefty items such as helping with house buying or paying for health or social care.
DEALING WITH SETBACKS
Sometimes decisions do not work out well and it can be difficult to not fret about the poor ones. When its share price was doing well, I invested in Blue Prism (PRSM:AIM). The company has a focus on increasing intelligent automation in the digital workplace – just the type of new technology I’m interested in. Unfortunately, within months of my investment, Blue Prism’s share price more than halved, by far my biggest loss.
Even though I have been quite frugal with spending throughout my adult life, it helps if you can avoid dwelling on loss-making disappointments.
Focusing on the overall sum of your portfolio and embracing the Warren Buffett-infused thinking that the right time to sell a share is when you have something better to buy is probably a more helpful approach. That said, I still struggle with buying shares when markets are falling, lacking the confidence that markets will recover anytime soon.
Follow Malcolm’s investment journey:
Part 1: Taking control of my pension
Part 2: Expanding horizons
Part 3: Paying more attention to FTSE 250 stocks
Part 4: Looking for value and growth
Part 5: Facing up to the inflation challenge
DISCLAIMER: Please note, Shares does not provide financial advice in case study articles, and is unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA and pension rules apply.
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