4 – How I Invest


In a nutshell, I mostly use unit-trust funds (containing equities, mostly international).  My long term average return after charges is between 7% and 12% per year; lower if calculated to a time of depressed markets, higher if calculated to a time of strong markets.  (Remember those are actual returns, and are significantly less when I allow for inflation.)

I want growth.  I have no deadlines (e.g. when an annuity must be purchased) so I can maintain a growth profile for a long time.

I’m not a fan of the word “risk”.  There’s “volatility”.  If you put all your eggs in one basket (100% invested in the shares of one tiny overseas company is about the worst I can imagine) then that volatility could annihilate your investments.  If you put all your money in cash it has extremely low volatility but it’s pretty certain that it will fall behind inflation:  the risk of not growing your money enough is so  huge that failure is a near certainty.

On other pages I mention “balancing” and also portfolios that include bonds, gold etc..  It’s well worth getting an understanding of why people choose portfolios with mixes of different investment classes, even if I don’t choose them.

Here’s my opinion on:


For now my wife and I hold between us a total of £1000 in cash, plus sums building up for spending on some bills in a few months.  We don’t need more cash because we have a few thousand in stocks-and-shares ISAs which we can access within about a week.


I’m not really a fan.  I know some people favour a bond/equity mix, with more bonds as you age (maybe 120-age=%equity).  When I’ve held bonds they seem to crash but not grow as fast as equities.  The mix is supposed to reduce volatility but the trade-off is reduced growth.

I don’t have a fixed date when I must buy an annuity, when a stock market fall would hurt.  So I don’t have a fear of temporary stock market drops.  So growth is more important to me than volatility.

Maybe I’ll look again at corporate bonds and at gilts when I actually retire.  For now I tend to avoid them.

Unit trusts (Funds, OEIC)

This is the core of my investments.

Historically advice favoured having a high % in your home country – UK in my case – biased to blue-chips.  I disagree.  I am looking for growth, and prices of goods that I buy every day are based on costs in countries worldwide, not just UK costs.  In my career I have worked worldwide and seen the phenomenal growth in SE Asia and elsewhere.   Websites like Gapminder show that Asia is and will remain the largest portion of world population.  So I have a lot of international equities.

I favour companies in countries that seem fair and free from government manipulation of markets or control of companies:  difficult is fine, manipulated/controlled is not OK.  As a sweeping generalisation, I favour SE Asia, Africa and South America more than I favour China and the old USSR countries.

For the last couple of years I’ve held:

  • 10-20%         UK Mid Cap or Special Situations
  • 20-25%         SE Asia
  • 10-20%         Emerging Markets
  • 10-20%         Europe
  • 10-20%         North America
  • 5%                  Japan
  • 5%                  Specialist/India/SouthAmerica/Other

I favour managed trusts over trackers/ETFs.  I look at some of the unusual and volatile companies that make up major indices, and I don’t like that the trackers have to invest in them.

Investment trusts

I know a couple of people who are big fans of investment trusts rather than unit trusts.

I feel it adds a level of complexity that could work for or against you, and I worry that the value might fall well below the actual asset value.  But perhaps with careful attention to the asset value vs price I could do better with investment trusts than unit trusts.  I bought some about a year ago and they have done very well.

Part of the reason for buying them was that HL charge no platform fees on shares and investment trusts in a (taxable) Fund & Share account.  I found that trying to realise a total annual capital gain just below the CGT personal allowance is far easier when you are selling shares & investment trusts (rather than funds where you only see the exact price after you have sold), so I plan to keep using them in that account.

So far what I’ve seen is that they seem to amplify stock market mood:  when the market is pessimistic they are a great buying opportunity, and when the market is buoyant they can be over-priced.  The number of funds in some geographical sectors can be limited, and many are aimed at producing consistent income at the expense of capital growth, so there’s only a limited number of investments trusts that suit my “international & growth” investment style.


I know someone who invests mostly in individual shares – a few UK large caps.  He’s made some good calls and done well so far, but it takes confidence to see a share fall a lot and therefore pump more money into it in anticipation of a good rebound.

I used have about 15% of my investments in individual shares.  My thought was to learn how to make decisions with blue-chip dividend-producing buy-to-hold shares, to avoid management fees compared to a UK Income fund.  It worked out OK overall, but it does require attention and a preparedness to sell and buy on occasion.

Mid caps and smaller caps and growth shares are a lot trickier to judge, but offer more potential for rises and falls.  I’d pay a fee for a fund manager for them.

I’m not sure I’ll go above 15% individual shares, and over the last year I have switched away from shares to funds and investment trusts.  I found I couldn’t be dispassionate enough, and ended up holding too long.  I think I’d have to pay far more attention to shares than I am prepared to do.

Share Schemes from your employer for normal employees

(I’m not talking about executive director pay package share incentives.)

It’s many years since I worked for an employer that offered this kind of scheme to employees, but it’s a great deal.  It can shift some employees from thinking of themselves as one of the exploited masses to wanting the company to maximise profits (well, maybe shift them a little in that direction).  It also creates a pool of shareholders who are likely to resist takeovers and also have a longer term view than your average corporate investor.

As I understand it there are 2 main scheme arrangements:

  • You contribute a small percentage of your pay (maybe 2%) and your employer matches it. Once you have held it for five years, the matched part is tax free.
  • You say how many shares you would like to buy in five years time at today’s price, the company buys and holds them for you, and when the five years are up you can decide to buy them or not. A no-lose choice.


  • It’s not usually in an ISA wrapper.
  • If it’s a non-UK company then the dividend taxation can be a pain.
  • You can end up over-committed to one company’s performance, and if that company goes bust it is also going to affect your job and any DB pension.

On that last point, I was chatting to American colleagues many years ago.  For them there was a company share scheme and also their pension was almost entirely made up of the company’s shares, so they had a phenomenal amount invested in one company: scary.

There’s a strong argument for regularly cashing in after the five years are up and moving the money to an ISA, so you get the benefit but you limit your one-company exposure to just the 5-year period.

Commodities (held in unit trusts)

I have a problem with commodities.  It’s my opinion of how the world works that in the long-term most goods get cheaper in real terms.  So if I bought commodity unit trusts I’d be hoping that a fund manager can buy and sell smartly while the underlying value falls behind inflation.   The same applies to holding cash and switching between currencies.   No thanks.

Individual International shares

These get tricky because of dividend double taxation and so on.  And there are so many companies in so many countries.  Much easier to let a fund manager choose and take care of admin, and the management fees are pretty low.

Small cap shares

Some people read Investors Chronicle and such information sources, and also review company financials and use other insights to decide what to buy and sell.   It might work, it might not.  We’re getting closer to roulette investing here.  But for many people who love this and diversify enough it can be OK.  Not for me (except if I have more free time and a big pension surplus and a desire to try small cap shares with a tiny fraction of it).

Peer-to-peer lending

I can’t decide about this.  Some of it is a reasonable rate of return compared to savings accounts.  Too much of it is money down the drain.  Overall I dislike it – it could appeal to too many dishonest borrowers.  It can be in a tax-free ISA wrapper, but even so I’m wary.


I know someone who favours buy-to-let.  He has 2 or 3 low-cost properties bought cash (not mortgage) with stable long-term tenants, which is about as good a plan as it’s possible to have for buy-to-let, in my opinion.

I don’t like the lack of liquidity, the ongoing costs (maintenance, insurance, and more), the risk of non-occupancy or missed payments, tax on the profit, the prospect of house-price drops, prospects of greater tenant rights, and the legal responsibilities of being a landlord.  He reckons on getting about 7% return vs current value after all costs, but he buys very cheap and plans to hold a very long time.

And it’s not in a tax-free wrapper.  (I know there’s taper relief but it’s just not the same).

Many years ago I briefly tried renting out a flat.  I found it really stressful – having my asset in someone else’s care.

I once heard someone on a voxpop on a podcast saying that investing in a stocks & shares ISA was hard to understand but they understood house ownership because they owned their own house.  Frankly they were wrong on both counts.  Owning your own house is not the same as being a landlord.

No thanks.

Weird stuff and Collectibles

Have you bought a parking space in the middle of an airport car park, and then wanted to sell it (through the original company of course)?  Someone is making good money from tarmacking a field and selling 2000 parking spaces online, but I’m not convinced it’s you.

Someone’s ostrich farm?

Someone’s wine collection?

This type of unusual opportunity could easily be run as a Ponzi scheme – people are putting in capital and getting a consistent return, but for how long?  If the controlling company declares itself insolvent where does that leave investors?

There’s an endless stream of rip-offs masquerading as financially sound investments.  The risks are higher than you think (including losing all your investment), the return is worse than you think.  Warren Buffet didn’t get rich on ostriches or parking spaces.

Collectibles?  Look at TV programmes like Antiques Roadshow and compare the typical item value growth (or loss) with stock market growth with dividends reinvested.  No comparison.  Collectibles are really a way of spending, not investing.  (Well, there are tax evasion reasons for holding collectibles but I steer well clear of tax evasion.  In any case, there’s better returns to be had from perfectly legal schemes like ISAs.)

Covered-calls and matched-betting are strange ones.  They seem to take effort and after charges the return is not much.  If it was a lot, unconstrained fund managers would be doing them a lot.  Me being UK-based means there’s also an extra layer of costs to include.  There’s better investments for me.