A lot of people invest in shares for retirement. That can be directly, though a pension plan, or more subtly, by owning shares simply in the hope of generating wealth for later life. Some shares are quite common in a variety of investors’ pension plans, from Rolls-Royce to BT (LSE: BT-A). Thanks to its high profile privatisation, BT became a popular holding with private shareholders and many people continue to hold BT shares.
Here I want to explain how I approach the role of BT shares in my retirement portfolio.
Building a retirement portfolio
At the moment I do not own BT shares. I have never owned them – and as of today at least, I have no plans to buy them in the future.
Clearly, then, I do not think that BT shares have a place in every retirement portfolio. But why not? After all, utilities are typically seen as having defensive qualities that help make them popular with people investing for retirement. As a former telecoms monopoly still with a very strong market position, BT is a classic utility.
One thing about defensive stocks I think often gets overlooked is that what is seen as defensive changes over time. For example, fixed-line telecoms saw strong, sustained customer demand a couple of decades ago. Since then, a lot has changed. One reason I sold my Centrica shares was because I see political risks to sustained demand for gas as a source of energy in the UK.
Choosing great companies
Not only that, but I think for someone looking ahead to retirement it is not enough simply to zoom in on defensive industries. One then also needs to choose great companies in those industries in which to invest.
Think about it like buying a house. Just buying a house in a part of town that is always popular does not make it a good investment. One needs to choose the right house, as well as a popular area.
In this regard, I see some things to like about BT as a possible holding for my portfolio. For example, its Openreach subsidiary has a leading position in the digital backbone of the country’s infrastructure. I think that is an incredible asset and could be a big source of profits in future.
But overall I do not see BT as a great company. Last year, for example, revenue fell 2% and post-tax profit tumbled 13%. Its Enterprise and Global divisions saw revenues fall, while the core Consumer business had flat revenues. In fact, the only sizeable division where sales grew was Openreach. Competition is fierce. The company’s legacy pension obligations could keep throwing up large costs.
BT shares and investment strategy
As my own investment choice illustrates, I do not think BT shares have a place in every retirement portfolio. In fact, I do not think that about any shares.
What I buy is based on me finding sectors I think are attractive. But crucially, I then also try to choose what I think look like great companies in those sectors. From my perspective, at least, BT shares do not meet that test. Every investor needs to make their own choices about what suits them. The more I know about a firm, the better able I feel to make such choices.