Bob Donaldson spent the first part of his career in the RAF, before becoming a financial adviser. He is now retired, having sold his business five years ago.
He says: “Retirement is great and, as I always said to my clients, you need two essentials in retirement: health and wealth. Without both it can be quite miserable, and I count myself lucky to have both.”
Donaldson spent more than 30 years advising others on the best ways to save for the future, so it is perhaps not surprising he has built a comfortable investment portfolio for himself and his wife.
He says: “We each have a Sipp, Isa portfolio and dealing accounts with AJ Bell, via their You Invest Direct platform. I initially started investing when Peps were around, but migrated to Isas when these products replaced them in 1999.”
Donaldson says that throughout his career he made sure to make the most of these tax-efficient savings plans. “I also ensured that adequate pension planning was done, so that any monies that came from the sale of the business were simply the icing on the cake," he adds. "This sale though enabled me to retire two years earlier than planned.”
However, his advice to other small business owners and entrepreneurs is not to rely solely on the sale of thir company to fund their retirement. This can be a significant gamble, he says, however good you think the business is.
Funds, Shares and Structured Products
When it comes to his investments, Donaldson says he holds a mix of pooled funds, direct shareholdings and some structured products.
One of his favoured sectors to invest in has been smaller company investment trusts. He says: “While these can be volatile in the short-term, over the longer-term smaller companies provide excellent returns - but they are not for the faint-hearted.”
This BlackRock trust has a five-star rating from Morningstar, reflecting its strong performance in recent years. It is managed by Mike Prentis and Roland Arnold, and is primarily invested in UK smaller companies. As the star rating suggests, it has delivered decent returns for shareholders over both the short- and long-term.
According to Morningstar data, the trust has delivered total annualised returns of 20.29% in the past three years; and a total annualised return of 22.69% over a 10-year time frame.
The Montanaro European Smaller Companies trust also has a five-star rating. The trust, managed by George Cooke, has delivered total annualised returns to shareholders of 20.72% over the past three years (and double-digit annualised returns over five and 10 years). Despite this, the trust is trading on a 12% discount.
RBS has had a troubled history, having received a massive taxpayer bail-out in the aftermath of the global financial crash. Although share prices have recovered slightly they remain significantly below the levels seen prior to the crash - and are still below levels recorded in 2010.
However Morningstar analysts give the stock a three-star rating. Morningstar equity analyst Derya Guzel says: “While there are signs of green shoots in Royal Bank of Scotland's revenue generation, challenges regarding litigation and restructuring costs, as well as revenue generation, remain to be dealt with in the short term.
“Although it is rather slower than peers, it seems RBS' management has found a good path to resolve outstanding issues and to operationally catch up with other banks on digitalisation. Restructuring is not completed just yet, however.”
Is Tesco Recovery in Place?
Meanwhile, Tesco has had its own troubles in recent years, with sales under pressure from the growth of discount supermarkets, such as Lidl and Aldi. It was also hit by an accountancy scandal back in 2014.
Despite this, Morningstar notes that the supermarket's fortunes seems to be on the up again. It says: “Tesco is the UK’s largest grocer in terms of sales and store network. We find find Tesco’s turnaround strategy appropriate and feasible, given its leading position in the industry.”
The turnaround plan is focused on the firm’s traditional strengths: scale in food and well-documented buying power. Early signs are encouraging that this is working, Morningstar adds.
Donaldson says that while he has made a “small profit” on these recovery shares he has made mistakes along the way. He explains: “Individuals will always tell you about the successful investment, but you learn from mistakes too.
“I bought into RBS, Lloyds (LLOY) and Tesco too early, hoping for some recovery. Market timing in the current climate is the hardest thing to call, so I have made multiple purchases in some cases to mitigate buying on a a high or low.”
When it comes to selecting investments, Donaldson uses a variety of online tools, such as those available on morningstar.co.uk and the website of trade body the Association of Investment Companies (AIC).
He says: “I prefer to invest with fund managers that don’t chop and change companies every five minutes, those that have conviction in the stocks they buy and their methodology, however I don’t like dogma.”
He adds: “Costs are important but not the driving force behind any investments. I will therefore hold some ETFs, but based on their ease of use rather than cost. Dividends are also important. If you can get a good 3% dividend it is a good start on any investment.”
He adds: “With my Forces pension, annuity and state pension, the assets we hold now only need to provide a 2 to 3% return for a comfortable living.”