Jeff Prestridge: An investment strategy that helps me sleep like a log

13 March 2018

I have invested for most of my working life – sometimes successfully, often disastrously. I have not built a mega financial war chest to see me through retirement, although I do have a half-decent pension waiting in the wings to pay a regular income.

But I have learnt a lot of hard financial lessons along the way. When I began investing in the early to mid 1980s, it was the time of Margaret Thatcher and rampant privatisations. My personal finances were tight – I was just married and unsure what I wanted to do for a living after accountancy fell out with me spectacularly (too many exams). A tough period of self-employment did not help matters.

The ‘Tell Sid’ TV commercial persuaded me to have a dabble in British Gas shares, but that was about it as far as privatisations were concerned. I did not hang around either – I sold my British Gas shares pretty quickly, as did many other so-called ‘stags’. [Stag is slang for a speculator who buys and sells stocks in short time frames to make quick profits.]

Looking back, it must have been the enthusiasm of youth – and the associated personal debts – that prompted me to think short term, not long term.

It was only really with the advent of tax-free personal equity plans (Peps) in the late 1980s that I began to take investing a bit more seriously. Initially, I was a bit like a bull in a china shop, looking to invest in stock markets that would make me rich quickly.

I was a spectacular failure. I was in Japan before the market crashed in 1990. I invested in emerging markets, but never quite seemed to get my timing right. Investment returns were, at best, meagre.

Expensive learning curves, not helped by the financial pressure resulting from a young family (three boys in the space of just over three years) and the loss of the main household income (my wife has always been more high powered) as she took time out to raise the boys. Sometimes I had no choice but to turn off the investing tap.

During the early 2000s, I continued to think that I knew investment best, happily constructing investment fund portfolios for my tax-friendly individual savings account (Isa). A lot of my money went into UK investment funds with the rest in a blend of overseas funds, investing in America, Asia, emerging markets and Europe. I never quite got it right. For a while I turned to a financial adviser for investment advice, but things did not improve markedly.

Today, I have pared my investment strategy down to the bone. I don’t build an investment portfolio with holdings in all the key markets. Nor do I try to second-guess the market by getting out when I think things could go pear shaped – and then reinvesting when the worst is over.

There are three strings to my current investment bow. Firstly, I invest without fail on a regular monthly basis into an online Isa, via a direct debit set up on my bank account.

Secondly, I only invest in long-established global investment trusts. As their generic name suggests, these trusts are invested worldwide, so they do the geographic portfolio construction for me. Their annual charges are also low compared to rival funds such as unit trusts, which means more of the returns generated end up staying with me rather than feathering the investment managers’ substantial beds. The investment returns are not spectacular, but they are better than cash.

As if that was not enough to excite, these global trusts have an excellent record of growing their dividends, year in and year out. All the evidence you need on this point is available by taking a peek at website, which represents the investment trust industry, and searching for its list of investment trust dividend heroes (trusts which for more than 20 consecutive years have grown their annual dividends).

Thirdly, I now only sporadically look at how my Isa is progressing. It is a long-term investment and should be left to build. Indeed, the less tinkering I do the better.

When markets fall sharply as they have done recently, I get a little apprehensive. But the best response is not to get spooked and sell up in desperation. It is much better to sit tight and believe in the long-term case for investing.

Not for one moment do I think I have ‘cracked’ investing. Nor am I foolish enough not to accept that there are far more successful investment strategies out there. But my three-stringed approach works for me. As a result, I sleep like a log most nights.   

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