Investment doctor: where should I invest an extra £75 a month?

The patient's question:

I have been investing in two funds over the past three to four years: Witan Investment Trust Isa and Fidelity Special Values Investment Trust. These are my only stock market investments, but I have plenty of savings in the bank. My total investments are £150 a month. I would like to invest another £50 to £75 a month. Any suggestions?

Initial diagnosis

Gary Millward, a financial consultant with Alan Steel Asset Management, says: “Given you are only 51 and have funds also lying in deposit, you should be prepared to invest monthly as much as you can afford in order to have the best chance of a decent retirement income.

“We wonder, though, why you don’t consider either saving completely inside an individual savings account (Isa), with no added charges and freedom from capital gains tax (CGT), or leveraging the investment returns by investing within a pension.

“I don’t know your tax position, but even a basic-rate taxpayer receives a 25% uplift on pension contributions. It’s even better for 40% taxpayers - a 67% uplift, and then invested in a fund also free of CGT and inheritance tax.

“Witan and Fidelity Special Values are long-term favourites. We would continue dripping into them, but this is a chance to diversify into other funds. Don’t keep too much excess cash savings – interest rates are going nowhere fast.”

 

Jason Hollands, the managing director of Tilney Group, says: “Your holdings in Witan* and the Fidelity Special Values investment trusts, both of which invest in equity markets, suggest you are a long-term investor looking for capital growth rather than needing any income from these trusts. Both of these are sound investments.

“Fidelity Special Values invest in the UK market, with a strong bias towards small- and medium-sized companies, while Witan has a global remit but nevertheless has a policy of always having a large chunk in the UK which currently represents 41% of the portfolio.

“Together, this means your investments are predominantly in the UK stock market, so you should focus on upping your international exposure.”

Investment treatment Mr Hollands continues: “One of my firm favourites in the investment trust world is Scottish Mortgage Investment Trust*, which confusingly neither invests specifically in Scotland nor has anything to do with mortgages. It does, however, invest in high-growth companies from across the globe, taking a concentrated and unconstrained ‘go anywhere’ approach.

“Currently, the Scottish Mortgage portfolio has 46% in US companies, 20% in the Eurozone and 18% in Chinese companies, with just 4% in the UK so it would seem to fi t alongside your existing UK-biased existing investments nicely. The top holdings are littered with fast growth companies such as Amazon and Facebook, electric car firm Tesla, Chinese online giants Tencent, Baidu, and Alibaba, and biotech giant Illumina, so the approach is fairly racy.

“An additional bonus is that Scottish Mortgage has very low annual costs of just 0.45%, which is a bargain for such a high performing investment and is considerably lower than the costs on your existing trusts.”

Mr Millward says: “It depends how you feel about the future. If you, like us, think optimists will win through, we’d suggest you let go of the roof and stick the extra into an attacker, such as Nick Train, the fund manager of Lindsell Train Investment Trust.

“Nick was quoted recently saying he saw more opportunities right now than he had seen for a long time. Given his excellent performance numbers this past five and 10 years, we’d say he’s worth listening to.”

 

Alternative medicine

Mr Millward says: “If you are pessimistic and would rather hang on to the roof, adding a goalkeeper (safe pair of hands) such as Sebastian Lyon at Personal Assets Trust would make sense, given his defensive strengths over the last 16 years at Troy.” Mr Hollands says:

“An alternative, which is an open-ended fund rather than an investment trust, is FundSmith Equity*, a concentrated global fund that backs quality businesses with strong cash flows, such as PepsiCo, Intercontinental Hotels, and Johnson & Johnson. The fund has a tremendous record and its manager, City big hitter Terry Smith, is confident enough in it to have invested £115 million of his own cash last year alone.”

Moneywise says: Mr Millward’s ‘attacker’ Nick Train also manages an open-ended fund Lindsell Train Global Equity*.

*Fundsmith Equity, Lindsell Train Global Equity, Scottish Mortgage and Witan are all members of the Moneywise First 50 Funds for beginners. For more details, visit our First 50 Funds page.