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Terry Smith: He operates on the principle of “buy good companies, don’t overpay and do nothing”
Tax relief on pension contributions looks set to be cut 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 people need to invest as much as possible for their retirement, as new corporate and other pension plans do not offer generous guaranteed payouts.
A comfortable life in old age is an expensive luxury, and it will become even more so in the years to come. Currently, a single person aged 65 who aspires to a comfortable life needs a fund of £790,000, according to an analysis by broker AJ Bell.
This is on top of the basic state pension, which may not exist in its current form in three or four decades, making saving now even more imperative.
However, some investors are already taking steps to counter the budget threat.
Data from the Interactive Investor platform shows that clients aged 18 to 45 are putting money away in stocks, equity funds and investment trusts, with stakes in a wide range of companies, making them an ideal way to set aside cash for a fun-filled retirement.
Anyone thinking of joining this movement can opt for solid funds rather than risky ones, or take a more exciting path, with additional risks, but also with the possibility of obtaining great rewards. If you want to sleep peacefully, but also live a little risky, a combination of both can be the perfect match.
Safety first
Alliance Trust’s portfolio contains “the best ideas from the world’s best stock pickers.” This description comes from Willis Watson’s Craig Baker, who oversees the global trust.
Under his aegis, investment selection has been entrusted to ten distinct teams of managers, each tasked with generating capital growth and rising dividends in their sector. This approach has produced a return of 69.3% over the past five years, compared with 39.5% 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 resulting trust could become part of the FTSE 100.
As a result of this promotion, the trust’s discount (the gap between its share price and the value of its net assets) may be reduced from the current 5 percent. In the meantime, you are buying your way into these assets for less money.
Nick Wood of Quilter Cheviot sums up Alliance’s appeal: “It offers good diversification whilst giving investors confidence that they are not investing in the riskiest assets.”
Fundsmith is a global fund aimed at those who like to keep things simple. Manager Terry Smith operates on the principle of “buy good companies, don’t overpay and do nothing”.
Aidan Moyle of Hargreaves Lansdown says that since 2010, Fundsmith has performed well, returning 584%, compared with 403% for its benchmark, the MSCI World Index, and 250% for the average fund in the sector. Although the fund has been a laggard of late thanks to its lack of technology stocks, Smith and his team bring a special kind of expertise, which is why I am a Fundsmith loyalist.
In contrast, the JPM Global Growth and Income trust owns some US technology stocks, but also supports large European groups such as Nestlé.
All the holdings are selected on the basis that their earnings are growing faster than the market average. Wood points to the trust’s “excellent track record”, which is one reason its discount is a minuscule 1.25 per cent.
Options for thrill seekers
Scottish Mortgage Investment Trust focuses on “transformative trends” in technology, a strategy that has produced some lows. This week, shares in Chinese e-commerce platform PDD, one of the fund’s largest holdings, have fallen 35%.
But there are also bright spots. Luxury carmaker Ferrari is still on the rise, having already gained 45 percent since January.
The discount on this trust – my commitment to innovation – is 9%.
Dan Boardman-Weston of BRI Wealth Management suggests the slightly less spooky Liontrust Global Innovation Fund.
His portfolio includes Nvidia and other tech stocks dubbed “The Magnificent Seven.”
For younger investors with more time on their hands, Dan Squires of online operator Saxo UK suggests the Seraphim Space Trust, which funds space-related ventures, particularly those attempting to solve the challenges of climate change and sustainability.
James Carthew of analytics firm QuotedData says the discount on Seraphim Space 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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