"Low Cost Funds Help Me Beat Inflation"

Investor views: Private investor Dean Malley says advice from a relative prompted him to reassess his investment strategy 

Emma Simon 25 September, 2019 | 2:12PM
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Rock bottom interest rates and a failing endowment policy caused Dean Malley, 52, to look again at his investment options. 

Dean, who is a mechanical engineer, says: “I’ve been investing on and off for about 20 years, but I started to take it a bit more seriously about six years ago."

 While Dean always used to shop around for the best rates on different cash savings accounts, when they all fell below the rate of inflation he decided it was time to do something else with my money. 

Initially, Dean invested in various products offered by banks and building societies, but says this proved to be a mistake: “The investments fell short of the predicted values. I think the sales people were more concerned about their commission than my investments.

“This was also a factor with my endowment mortgage, which fell to about 50 per cent of the original predicted maturity value.” 

In a bid to get a better return on his money Dean sought advice from a relative, who had been more successful with their investments: “I now do my own research. I invested a bit more cautiously at first; I try to spread my money around different funds and monitor their performance, building on the better performing ones, and ditching those that don’t deliver.”

Now the majority of his investments are in an Isa wrapper through which he invests in a mix of cash, property and shares. On top of this, he has a number of private and workplace pensions which he also funds. He also has an offshore fund, which — under the right circumstances — he hopes will offer tax-free returns. 

Dean, who is married with two grown-up children, says he takes the principles of diversification seriously and has split his investments between a number of platforms and advisers. At the moment he has holdings with AJ Bell and My M&G as well as funds with St James’ Place.

Dean says: “The latter was taken out through a financial adviser, though I have selected the funds that I hold with both AJ Bell and My M&G.”

In both these cases Dean has selected in-house funds. With AJ Bell he is invested in two of its own portfolios: AJ Bell Income & Growth and AJ Bell Passive Adventurous, both of which have performed well to date, and he is happy with the returns.

He also invests in a number of overseas funds with M&G, inclduing two funds with an income bias: M&G Emerging Markets Bond and M&G North American Dividend. Both of these have a four star rating from Morningstar, reflecting strong performance relative to peers in recent years. 

Both have good long term track records. According to Morningstar data the M&G Emerging Markets Bond has delivered total annualised returns of 10.20% to investors over the past five years. Over three years it has delivered returns of 6.35% — with lower returns largely due to underlying changes in the fixed income market.

Returns have been better on the North American Dividend fund. This has delivered annualised returns of 16.37% over the past five years, and a similar return (16.22%) over three years.

Dean also invests a couple of M&G index tracker funds. He says: “When selecting finds I try to research the company first, then find out a bit more about the fund manager and his, or her, track record. Fees also come into consideration.”

For this reason he has chosen a number of passive funds, or managed portfolios that utilise lower cost trackers and ETFs.  

He adds: “I have tended to use managed funds because I figure that a good fund manager knows more about investment markets than I do. It would be nice to have a crystal ball and go out and buy specific shares, but sadly I don’t have one, and I feel if I am investing directly in individual shares this is more akin to gambling.”

Dean tends to invest lump sums into these different Isa accounts, though in the past they have been funded through monthly direct debits. He says: “Looking back at the past few years my investment strategy hasn’t changed."

While in the short-term, he is wary that political issues such as Brexit could hurt his investments' performance, he is optimistic for the long-term. He adds: "One thing I will keep an eye on is interest rates. If they were to rise considerably I’d look to cash in my investments and put this money in a high interest bank account. I can remember back in the late 80s and early 90s I was getting 13%t interest on my TESSA account. If only those kind of risk-free returns were available today!”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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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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