Investor Views: "I've Made 8% a Year, Tax Free"

Private investor Jonathan Whiteley tells Morningstar how careful fund choices and clever tax planning helped him to retire early

Emma Simon 8 July, 2015 | 9:00AM
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Jonathan Whiteley, a retired finance director, says all his investment decisions are now guided by three basic rules: “I keep fees as low as possible; I minimise the tax I pay; and I only put money into investments I understand, companies I’ve heard of or countries I’m happy to visit.” 

Whiteley, who lives in Rochdale near Manchester, says this has proved a successful strategy in recent years. “Since April 2009 my portfolio is up by around 49% - that’s an annual return of around 7.8%, tax-free, each year. In the current investment climate I’m very happy with these returns.” 

Whiteley, pictured, says he has dabbled in investments all his life but started investing ‘more seriously’ in 2009 as the prospect of retirement loomed. 

He stopped working in 2010, although at 59 years of age it will be several years before he gets his State Pension. His main goal is to ensure he and his wife, Janet, a retired teacher, have a financially secure retirement, with enough money to enjoy themselves. 

He is in receipt of a small company pension, from a previous employer, but has invested the larger company pension he got on retirement (a money purchase plan) into his SIPP or self-invested personal pension. The couple also has a portfolio of ISAs as well as a smaller number of investments outside these tax-wrappers. 

Jonathan Whitely has made 8% a year tax freeBut his aggregated portfolio is now concentrated on just five funds: all his ISAs are invested in one fund, Fidelity Moneybuilder Balanced. He says: “This is our core holding and I’ve a significant proportion of my SIPP invested in this fund, too.” The multi-asset fund invests in UK blue-chip shares and corporate bonds—around a quarter of its portfolio is currently in the bond market. Thanks to consistently beating the competition, this fund has a 5-star performance rating from Morningstar. 

Whiteley takes more risk with other funds he invests in, including Newton Global Income. This fund has as an impressive Morningstar Analyst Rating of Silver, meaning the analysts are very positive about future prospects for shareholder returns. 

Morningstar analysts say the fund manager, James Harries, who has been at the helm for 10 years, “has built up an impressive track record during a challenging half decade for income fund managers, amidst dividend culls and a subsequent growth-led rally.” The fund has achieved an average return of 8.5% in each of the last three years. 

Whiteley also invests in Fidelity UK Smaller Companies. He has been very impressed with its returns in recent years. The fund has a Bronze rating from Morningstar analysts, reflecting their confidence in this manager to continue to outperform. The fund also has a 5-star performance rating showing it has delivered well against its peers over the past three years. 

Morningstar analyst Daniel Vaughan says: “This fund remains a good choice for those seeking exposure to the UK small-cap market, although it is currently closed to new investors.” He points out that although manager Alex Wright remains the named manager on the fund, it is Jonathan Winton (like many Fidelity managers a former in-house analyst) who has taken on responsibility for stock selection and portfolio construction, after Wright also took on the day-to-day running of Fidelity’s giant Special Situations fund

The UK small-cap fund is up more than 11% so far this year and has rewarded Whiteley with annualised returns of 28% in each of the past three years. 

His other holdings are Threadneedle European, which gets a 3-star performance rating at Morningstar, and Fidelity Switzerland. The latter has only earned a 2-star rating and Neutral analyst view as its moderate outperformance of peers has been combined with higher-than-average volatility. Whiteley says this fund is a more defensive option versus his global income and smaller companies funds. “It invests in larger companies I am familiar with, such as Novartis (NOVN), Roche (RO), Nestle (NESN) and Credit Suisse (CSGN). This fund is a good counterbalance in my portfolio in times of uncertainty; it tends to do well when the other ones aren’t.” 

Rather than take dividend income from these funds, Whiteley reinvests this income so it continues to grow in a largely tax-free environment. For income he simply cashes in a proportion of his holdings each year, while ensuring the couple doesn’t exceed their annual Capital Gains Tax allowance of £10,200 per person. “This gives us a 20% tax saving. There aren’t many investments that will produce this kind of return in a year.” 

Whiteley says he doesn’t have direct shareholdings. As a finance director he initially worked for larger companies - including Bass and Vodafone, but later worked for smaller start-ups where he had the option of taking equity holdings. He has now sold and reinvested profits from these within his SIPP and ISAs. 

He admits though that he has made mistakes along the way. “The biggest were probably investing in racier Latin America or India funds, where in hindsight I wasn’t comfortable with the level of risk I was taking with my money.” 

He adds: “Investors have to learn to be honest with themselves. In the end I decided it was better to cut my losses and move my capital to funds I was more comfortable with.” He lost 18% in the Latin America fund and 12% in the India-based investment, but was able to sleep better at night knowing he was back in his comfort zone.

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Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk