Investor Views: “I Lost my Pension in the Dot Com Crash”

Private investor Michael Young tells Morningstar how he has rebuilt his finances - and is now feeling more optimistic about his retirement

Emma Simon 3 August, 2016 | 10:10AM
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Michael Young retired last year, but he says at one point he was worried he would not be able to afford to stop working, after seeing the lion’s share of his savings wiped out by the dot com crash.

I’d assumed that by the time I reached 65 I’d be sitting on £1m

He is now a far more cautious investor as a result, although this hasn’t put him off equity investments completely.

He says: “I’ve always saved around 20% of my earnings, so by the time I was in my early 50s I had a healthy pot of money in my SIPP. I’d assumed that by the time I reached 65 I’d be sitting on a million-pound pension pot.”

But this was the late 1990s. Equity markets were racing ahead and Young says that there was the tendency – for advisers and investors alike – to become a little greedy.

Once he had passed his 50th birthday Young said he had classed himself “medium to low risk” investor. But his advisers still recommended funds with significant exposure to technology, telecommunications and media sectors. When the dotcom bubble burst in early 2000 he said it was a “huge fright” to see most of his pension had disappeared. He said: “I had lost a significant amount of money. Shares didn’t bounce straight back. The security I thought I had was gone. I felt like I’d been robbed.”

He took his case to the Financial Ombudsman Service, who agreed he had been mis-advised and demanded the advisory firm pay him a six-figure sum. But after this firm went out of business Young says he didn’t receive a penny in compensation.

The Benefits of a Diversified Portfolio

Since then he says he’s been “very careful” about choosing advisers. When he sold the engineering firm he owned, he said he interviewed eight different advisers before settling with wealth manager Brooks McDonald. “I’ve been very happy with them. They take a set fee, and it’s all very transparent. My portfolio has grown by around 5.5% a year in recent years, which is better than the FTSE All-Share Index, although I am overall in a lower risk portfolio.”

Young now has a more diverse range of funds: including equity investments, absolute return funds, fixed interest investment, and structured products. He says he has invested in a number of Fidelity funds over the years and these have proved to solid steady performers.

One of his best investments has been Old Mutual Global Equity Fund. This has a five-star rating from Morningstar reflecting its strong performance in recent years.

This fund, managed by Ian Heslop, seeks to achieve long term capital growth through the active management of a diversified portfolio of global equities. Young says he has seen his money more than treble in value in this fund.

A Focus on Total Return

Another strong performer has been Threadneedle UK Equity Income. This has a four-star performance rating, and its managers, Leigh Harrison and Richard Colwell, have a coveted Silver analyst rating, reflecting Morningstar’s confidence that they will continue to outperform in future. Since October last year Colwell has been recognised as the lead manager of this fund.

Morningstar analyst Simon Dorricott says: “The combination of manager experience, pragmatism, market awareness, and the emphasis on total return make this a strong fund for those seeking exposure to UK equity income.”

But despite taking a more cautious approach, Young says not all his investments have been successful. Against the advice of his advisers he decided to get more exposure to gold and invested in BlackRock World Mining (BRWM). Although the managers of this trust have a Silver rating, Young says he has lost money in this fund, as mining shares have struggled in recent years.

Young said he also lost money after investing in Braemar Group, the property investment fund manager that specialised in student accommodation.

Buy-to-Let for Retirement Income

Young says that his financial situation has benefitted from judicious investments in the buy-to-let market. Calling buy-to-let the “bedrock of my retirement plans”.

He invested in some new build flats in Boreham Wood, on the outskirts of London, when moving to the capital fifteen years ago. “They were on the market for £130,000. I just needed to put a quarter of this down as a deposit which I was able to do from the sale of my business.”

Young raised a mortgage to fund the rest of the purchase, and the rental income has covered the costs on this.

“I wanted to invest the money from my business in something solid. I knew the value of these properties wouldn’t necessarily go up quickly, but I thought it was a good investment for the future,” he explained

Over time, Young bought other buy-to-let flats in the area, and one in Birmingham. Although the Birmingham property yields around 11%, he says the value of this property has only increased marginally over the past decade. In contrast the London properties have doubled in value over the same period. He plans to use the rental income from these properties to subsidise the income taken from his SIPP.

“You can’t take this money with you. I’ve had open heart surgery so I know there’s no guarantee how long I’ll be here for,” he adds. “I want to enjoy my retirement: we go on a cruise every year and spend a month in Barcelona. But I’m also conscious that I don’t want to run out of money either.”

“My strategy is to live off the income from my pensions and these rents. If myself and my wife need any more money we can sell one of the buy-to-lets. This will ensure the pension doesn’t run out and hopefully there will be some to leave to my children and grandchildren.”

What funds are in your ISA or SIPP? What have been your most successful investments to date? If you'd like to feature in Investment Views and tell us about your investment strategy please contact the Editorial team on UKEditorial@morningstar.com

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BlackRock World Mining Trust Ord587.00 GBX-0.68Rating
CT UK Equity Alpha Inc Rtl Inc0.66 GBP0.74Rating
Jupiter Merian Global Equity I GBP Acc4.96 GBP0.35Rating

About Author

Emma Simon

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

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