DIY Investor Diary: how I mix tech and dividends

Entering retirement can sometimes act as a prompt to take some investment risk off the table, be it holding funds rather than shares or seeking out steady dividend payers rather than racy growth shares.

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However, things can be more complicated than that. That’s the case for one ii customer, who has turned his self-invested personal pension (SIPP) into an income portfolio but continues to seek out multi-baggers elsewhere.

The customer is 66 and has flirted with the idea of retirement, having not worked for around a year. That caused him to “flip” his pension, which has around £600,000, into a vehicle for steady dividend payers, targeting a yield of around 7% or 8%.

As the first table shows, there’s quite a mix here, from classic UK-listed dividend behemoths such as BT Group (LSE:BT.A), Rio Tinto  Ordinary Shares (LSE:RIO), HSBC Holdings (LSE:HSBA) and M&G  Ordinary Shares (LSE:MNG) to a handful of investment trusts. There’s the popular and high-yielding Henderson Far East Income Ord (LSE:HFEL), Greencoat UK Wind (LSE:UKW), SDCL Efficiency Income Trust plc. (LSE:SEIT) and CQS New City High Yield Ord (LSE:NCYF).

“I looked at solid companies for a lot of the money,” he said. “I liked names in the FTSE 100 and FTSE 250 – these won’t crash and burn.”

That portfolio should provide some reliable income, much as there can still be hiccups, as with the proposed managed wind-down of the SDCL trust. 

Shares in the trust tumbled this week after the board said it would suspend dividend payments and "prioritise preserving value and reducing debt ahead of future returns of cash to shareholders".

But his overall portfolio stretches more further, with around £1 million in an ISA and a further £3 million spread across trading accounts.

The customer spent a long time working in the energy sector and focusing on technology, and in the spirit of investing in what you know, he does hold shares in both areas. 

Note, for example, that the ISA includes Glencore (LSE:GLEN), Griffin Mining Ltd (LSE:GFM) and a copper miners exchange-traded fund (ETF) but that different innovative technologies also sit in the portfolio. 

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The customer bought into Seraphim Space Investment Trust Ord (LSE:SSIT) when the shares were on a low a few years ago, holds some of the tech funds, owns some gaming companies such as Frontier Developments (LSE:FDEV) and has previously invested in areas like graphene.

This has resulted in some big wins and losses at times, but the customer remains convinced that strong performers can tip the balance. “Some might crash and burn but the winners outweigh the losers,” he says.

Having worked on technology, he can research a theme and ask whether it might take off in a few years. But he does sometimes wish he had taken more risk.

“I have a nose for some of these trends, I wish I had followed it a lot more,” he says.

“I never invested in the Magnificent Seven, although I have been invested through investment trusts.

“One missed opportunity was bitcoin in 2011. I was talking to a guy about it being priced at $11. I should have taken a punt.”

Being contrarian

If this investor likes a combination of dividend payers and growth shares, he also has a contrarian streak and likes to back bombed-out shares. That worked well with Seraphim, and explains some of his other holdings such as Kier Group (LSE:KIE).

Meanwhile, like many other DIY investors he has learned over time to combine instinct with research.

“I have a long track record of successes and failures which play into where I am now,” he says.

“I started in the late 1980s, using newspapers, then through the dotcom boom where I made lots of wins and lots of losses.

“I’ve done a lot of investing on gut feel but over time I’ve tried to temper that with more due diligence.”

As he puts it, he has moved from investing on hunches to checking balance sheets, and more recently using AI to generate detailed assessments of the latest thinking around a given share. He tries to avoid investing based on limited research or recommendations from forums.

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The customer’s trading accounts have grown substantially after he used up his allowances on tax wrappers, and this has left him with the “good” problem of facing a possible capital gains tax bill if he were to sell out of a position.

That’s well illustrated by one of his biggest investment successes, Rolls-Royce Holdings (LSE:RR.).

“I bought in 2016, 2017 and 2018 as a solid place to put a large chunk of money,” he says. “I didn’t think it would crash and burn but it did in Covid.”

“It had a rights issue at 32p, that was a no-brainer so I maxed out on that. That 32p is £14 now.”

“I sold some of the shares at about £5. It has carried on going but I kept a large chunk, I have about half a million, easily my biggest single investment. It’s difficult to get out of it without having to pay tax on it.”

He meanwhile finds it much easier to research companies than when he first started invested, thanks to better availability of data and tools such as AI. But he does face some of the usual problems associated with investing, whether it’s not knowing when to sell out or ending up with too many holdings.

Take his SIPP as an example of the latter point. He originally wanted between 10 and 12 holdings but the list has proliferated over time.

The trouble is there is no 'magic number' when it comes to the number of holdings in a portfolio. Among the key considerations are whether you are willing to put the time and effort (a great deal of which is required for a large number of holdings), and if the quest for diversification is being overdone. 

In our DIY Investor Diary series, we speak to interactive investor customers to find out how they invest in funds and investment trusts, what their goals and objectives are, current issues and concerns regarding their portfolio, and what they’ve learned along the way. The aim is to provide inspiration for other investors, and we would love to hear from more people who would like to be involved. We do not require those featured to be named. If you are interested, please email our senior fund content specialist directly at: dave.baxter@ii.co.uk