Why following Neil Woodford could mean you don’t need the State Pension

Neil Woodford’s investment style could provide high returns that reduce an individual’s reliance on the State Pension.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

The reputation of Neil Woodford has come under pressure in recent years. The fund manager has seen his performance disappoint compared to his peer group at a time when global stock markets are enjoying their longest bull run in decades.

The reality, though, is that Woodford is a long-term investor. His performance is unlikely to always be outstanding, and periods of underperformance are almost inevitable. Following a number of his investment principles could still, therefore, improve an investor’s retirement savings prospects. In time, it could mean they become less reliant on the State Pension.

Value

Neil Woodford recently sold his holding in Legal & General. Although he still felt that the company offered appeal from a business perspective, he believed that there were better value investment opportunities available elsewhere. This focus on value has been a constant throughout his career, and has allowed him to exit positions when other investors are becoming overly-bullish. Similarly, it has meant that underrated shares have produced high returns for his funds.

By focusing on a company’s valuation, an investor may be able to gain an insight into the risk/reward opportunity that is available. As history shows, buying high-quality shares at low prices is one of the most effective means of generating impressive total returns in the long run.

Patience

As mentioned, the performance of Neil Woodford in recent years has been disappointing relative to his track record. He has underperformed the market, but his investment style is perhaps not suited to current market conditions. The FTSE 100 and S&P 500 have enjoyed significant bull runs in the last decade, and a defensive value investor such as Woodford is therefore unlikely to be able to keep up. Put simply, defensive shares have underperformed cyclicals in recent years as bullish investor sentiment has encouraged a ‘risk-on’ attitude to dominate.

The reality, though, is that a bear market and a recession are going to take place in the long run. No bull market has ever survived in perpetuity, and this one will be no different. As such, Neil Woodford’s focus on patience could be rewarded. He is sticking by his strategy, and investors who do likewise even during periods of underperformance could be handsomely rewarded.

Income

While dividend investing may not be in vogue at the present time due to the growth opportunities that are on offer, various studies have shown that it is the reinvestment of dividends which can have the biggest impact on total returns. Neil Woodford continues to focus on income generation as part of his overall portfolio goals. And by doing the same, it may be possible for an investor to generate higher retirement savings than they otherwise would be able to.

Certainly, growth investing is tempting. It can be more exciting and satisfying in the short run. But from a retirement perspective, reliable dividends could make an individual less dependent on the State Pension when compared to volatile capital growth which may or may not last in the long run.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Peter Stephens owns shares of Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Publish Test

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut…

Read more »

Investing Articles

JP P-Press Update Test

Read more »

Investing Articles

JP Test as Author

Test content.

Read more »

Investing Articles

KM Test Post 2

Read more »

Investing Articles

JP Test PP Status

Test content. Test headline

Read more »

Investing Articles

KM Test Post

This is my content.

Read more »

Investing Articles

JP Tag Test

Read more »

Investing Articles

Testing testing one two three

Sample paragraph here, testing, test duplicate

Read more »