Investor Views: “Will Tesla Investment Help Me Retire Early?” – Morningstar

Greg Beston is in his mid-20s, but is thinking long-term when it comes to his investments. Beston, who works as a software engineer says: “I’d love to have the option to retire early. I really enjoy my career, and it’s likely I’d continue to work in a similar field even if I was financially independent.

“But I’d like the options and freedom financial independence would bring: for example taking a guilt-free long vacation or spending a year or more at home with family if I wanted too.”

Although he is still relatively young, Beston has been investing for almost 10 years. He has a defined contribution pension through his employer, but tries to save as much as possible into his ISA, which is invested through AJ Bell YouInvest.

He largely invests in ETFs, which help keep investment costs down, but also holds some individual technology shares, in the hope of generating some higher returns.

He says: “I bought my first ETF when I was about 18. Initially I kept most of my savings in a cash account. But after graduating from college I thought it was time to look more seriously at investing, and decided to reallocate my savings into a mixture of shares and bonds.”

Beston, who currently lives in London, says his main priority when selecting funds is to keep charges to a minimum. He says: “Past performance is not a strong indicator of future returns. I expect all funds following the same strategy to perform the same over the long term, so it makes sense to me to opt for the one with the lowest fee. My expectation is that this will leave more money in my pocket in the long-run.”

Top-Rated Low-Cost Funds

Around 80% of Beston’s portfolio is in low costs ETFs; he is typically looking for expensive ratios of less than 0.1%. These include Vanguard Total Stock Market Index Fund (VTI) which tracks the US stock market.

This ETF has a Gold Rating from Morningstar analysts. Analyst Adam McCullough says: “Vanguard Total Stock Market Index offers diversified exposure to U.S. stocks of all sizes. A low fee and reasonably representative benchmark leave this fund well positioned to continue its long streak of producing superior risk-adjusted returns over the long haul.”

Analysts point out that passive strategies often outperform active ones in developed and well researched stock markets like the US.

Other ETFs in Beston’s portfolio include Vanguard Total International Stock Index fund (VXUS). This tracks shares in Europe and Asia, and is another Gold Rated ETF. Analysts say this ETF is “well diversified across developed and emerging markets”.

Beston also invests in Vanguard’s REIT Index Fund ETF (VNQ). This Silver Rated ETF tracks the performance of a number of Real Estate Investment Trusts; firms that manage properties and collect rent. Beston, who does not own his own property yet, wanted to get exposure to rising property prices.

Analyst David Kathamn says: “Vanguard REIT ETF is by far the largest real estate exchange-traded fund, with more than $30 billion in assets – and it’s also one of the cheapest, with an expense ratio of 0.12%. It features experienced management and an excellent record of tracking its index. It remains a fine option in its niche.”

But he points out that as this is a single sector funds it does remain a higher risk option.

Stock Picking for Growth

Beston has a “small allocation” for buying individual shares, and tends to hold between 15 and 20 in his portfolio. These are mainly technology-focused shares. He admits: “I haven’t been able to consistently beat the market average. Some shares have done very well, but others have underperformed.”

Two of his best performing shares have been Tesla (TSLA) and Nvidia (NVDA).

Tesla designs and manufactures electric cars. The company has a one-star valuation rating from Morningstar analysts, meaning they consider it to be trading far above its fair value. The firm is run by technology entrepreneur Elon Musk.

Analysts say there is a “very high” degree of uncertainty about the company’s valuation. Morningstar’s David Whiston says: “Tesla has a chance to be the dominant electric vehicle firm and is a leader in autonomous vehicle technology, but we do not see it having mass-market volume for at least another decade.” Its share price has risen substantially over the past two years, from being priced at $151 at the start of 2016, to a high of $383 earlier this year.

Nvidia Corp is involved in developing graphic processing units for computer platforms, designed to be used by a number of sectors including the gaming industry and car ‘infotainment’ systems. Again Morningstar analysts note that its current share price of $189 is well above its fair value estimate of $90.

Nvidia shares have risen steeply over the past two years. At the start of 2016 they were priced at just under $30. Analysts note that this stock’s valuation also has a high degree of uncertainty. Analysts say Nvidia does have a narrow moat; meaning it has a competitive advantage over competitors. In contrast, Tesla does not have a moat.

To date, Beston has avoided investing in any disasters. “I started investing just after the 2008 crash, and we’ve been in a long upswing ever since. I’m sure I’ll experience a few downturns in the future, and the historic lessons seems to be not to panic sell. Hopefully I’ll be able to follow this advice when it’s a good chunk of my life savings on the line.” 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person’s sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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