CASE STUDY: My Car Crash Prompted New Fund Picking Mission

Many people reassess their financial priorities after going through a difficult time. That was certainly true for DIY investor Jane Rebus, who was injured in a car accident and realised she needed a savings cushion.

“The accident happened a couple of years ago, and while I was recovering I realised that I had to start saving,” she says.

“I wanted to ensure there was money for my retirement, but also a pot to access on a rainy day. Until then I’d always been more interested in spending the money I earned. But this made me realise I needed to set aside money for the future too.”

Jane is in her early 30s. Before looking at where she could save, she looked at how she was spending.

“The first step was to understand where my monthly income was being spent, and which expenses could be removed.

“I set up a budget, which still helps me keep track of monthly income and expenses. Once I started to build up a savings pot, the question was what to do with the extra money.”

Jane’s fund picks

Initially, Jane looked at opening a deposit account. But with interest rates so low, she decided to look at investing instead, in the hope of achieving better returns.

Jane has since opened an ISA with Chelsea Financial Services.

Through this she invests in a range of funds. She also has an occupational pension via her job, which is in the financial services. She says both offer good tax-incentives to save.

By splitting surplus cash between the two she makes the most of the upfront tax-relief on pension contributions and the flexibility ISAs offer when it comes to access.

“I like the fact that with an ISA you can withdraw the money whenever you need to. It is not locked away, although you may need to wait a few days for any investments to be sold,” she says.

As she was a new investor, Jane opted to invest in funds rather than shares. She liked the idea that a fund manager would manage the portfolio, and that there would be good diversification.

At the moment, she is invested in a range of funds, including a couple of the fund-of-fund portfolios run by Chelsea Financial Services.

In particular, she has been pleased with the performance of the company’s VT Chelsea Managed Aggressive fund, which carries a five-star Morningstar rating and has delivered annual returns of 15.34% over the past three years. As its name tag implies, it has high exposure to equity funds.

Alongside this Jane has tried to diversify by investing in funds focused on different geographical regions and sectors. She has a holding in Axa Framlington Global Technology, Baillie Gifford Emerging Markets and Fidelity Japan Smaller Companies.

Axa Framlington Global Technology has a Morningstar quantitative rating of silver. This is based on its “notable” investment process and strong portfolio-management team. Morningstar also gives the fund four stars, reflecting its strong performance in recent years.

The fund invests in technology companies across the world. Global technology is a sector that has performed well in recent years, and the fund’s performance reflects that. It has annualised returns of 30% in the past three years, and 26.07% over five years.

Fidelity Japan Smaller Companies has a Morningstar quantitative rating of bronze and is another four star fund. It hasn’t delivered quite the returns the tech market has, but it has nevertheless been a steady long-term performer.

According to Morningstar data, it has delivered annualised returns of 7.9% over three years, and 11.65% over the past decade.

Lessons learned

Jane says that while she has only been investing for a short-time, it has not always been a smooth ride.

“I had only been investing for a short while when the market crashed due to the Covid pandemic.

“I totally panicked, thinking I had lost all my money. Thankfully, I decided not to follow my instinct to sell immediately. Instead, I waited for the market to get back up. That proved to be the right decision as I avoided crystallising my losses.

“Since then I have sold a couple of funds and purchased other ones. I am aiming to review the performance of my funds at least every six months and make changes where necessary.”

When looking at fund options Jane says she looks at fees and a fund’s past performance. She adds that the process has taught her the power of diversification.

“I have tried to spread my risk by investing in funds that have different types of assets or are invested in companies that do different things in the market.

“That way, if a specific fund in my portfolio does not do as well, hopefully other ones will do better and this will compensate for this loss.”

Originally reported by Emma Simon at MorningStar. Read the article here

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and investor do not constitute financial advice.

Published on 28/10/2021