Last week, Fundsmith published its 2025 annual results. Based on these, is now the time for me to invest?

Performance

For those unfamiliar, Fundsmith invests in high-quality businesses with strong brands or competitive moats, high returns on capital, predictable cash flows, and the ability to grow profits without needing much debt.

Smith strips this down to a simple three-step mantra: “Buy good companies. Don’t overpay. Do nothing.”

Putting this into practice, Smith trounced the fund’s benchmark (the MSCI World Index) between 2010 and 2020. Since then, though, Fundsmith has now underperformed for five straight years.

In 2025, it returned just 0.8% compared with a rise of 12.8% for the MSCI World Index. In a strong year when most indexes soared, that’s very disappointing.

What’s gone wrong?

Smith said three things help explain this underperformance:

• Extreme S&P 500 index concentration
• Passive index investing
• Dollar weakness

The last one doesn’t really concern me. But Smith points out the 10 largest stocks accounted for 39% of the S&P 500 at the end of 2025, delivering 50% of the total return.

Without owning Magnificent Seven stocks as large positions, the fund manager argues it’s been very hard to outperform in recent years.

While true it’s harder, it’s not impossible. For example, Bill Ackman (Pershing Square) and Chris Hohn (TCI Fund Management) have successfully outperformed the S&P 500 over the past five years without owning Tesla, Meta, Apple, or Nvidia.

Additionally, he argues that passive index funds are distorting markets by buying stocks without regard for quality or valuation, essentially creating a momentum-driven bubble.

[E]ven if we are right in diagnosing this move to index funds as one of the causes of our recent underperformance and it is laying the foundations of a major investment disaster, I have no clue how or when it will end except to say badly.
Terry Smith

It’s worth noting that Fundsmith owns three Magnificent Seven stocks (Microsoft, Meta, and Alphabet), and all were among the top five contributors to 2025’s performance.

Indeed, Meta ranked among Fundsmith’s top contributors for the fifth time, with Microsoft making its tenth appearance. So, while Big Tech has helped drive the fund’s longer-term performance (which is still strong), Smith just hasn’t had enough exposure to it.

Wegovy maker

Novo Nordisk (NYSE:NVO) crashed about 40% last year, easily Fundsmith’s worst performer. The Wegovy maker fell behind rival Eli Lilly in the GLP-1 drug race, leading to the ousting of its CEO.

However, I note that the stock has bounced back 17% so far this year, driven higher by news that its Wegovy treatment has been approved in a daily pill form by US regulators.

As well as improving its competitive standing, this could also get sales growth moving back in the right direction. The main risk with this business is Eli Lilly beating it again with an improved GLP-1 drug.

However, trading at 16.7 times forward earnings, I think Novo Nordisk stock is worth considering.

As for Fundsmith, though, I’m going to give it a miss. The ongoing underperformance still worries me.

The post Should I buy Fundsmith Equity for my Stocks and Shares ISA in 2026? appeared first on The Motley Fool UK.

FTSE 100 stock

After a massive multiyear rally, the BAE Systems (LSE:BA.) share price peaked above 2,000p in early October. Yet it has since retreated to around 1,700p, as I type (30 December), representing a 17.5% fall.

This downward pressure appears linked to renewed hopes for a Ukraine peace settlement, with President Trump stating that he thinks President Putin is now serious about peace. Time will tell. Any actual ceasefire would be welcome, but could see the stock fall further.

This sets up a somewhat strange dynamic for shareholders like myself. I obviously want peace in Ukraine, but also don’t like to see a falling investment value. How to square this?

Well, peace doesn’t suddenly equal much lower defence spending. Even if there’s a negotiated settlement, Europe has fundamentally changed its attitude to defence spending, while military budgets are rising elsewhere too. 

By November, BAE had secured orders of more than £27bn for the year, including £4bn for 20 Typhoon aircraft for Türkiye. And that doesn’t include the UK’s deal with Norway to supply at least five Type 26 anti-submarine frigates. This is “expected to lead to a substantial order“.

Next year, revenue is tipped to rise 7% to £32.8bn, with earnings per share increasing around 12% to 84p.

This puts the FTSE 100 stock on a forward-looking earnings multiple of 20.4. That’s not particularly expensive for a diversified defence giant with a massive order book (£75.4bn in June).

Looking ahead to 2026, I don’t expect defences shares to deliver similar returns (BAE still rose more than 40% in 2025, even after the pullback). But for long-term investors, I reckon BAE is worth considering at current levels.

GLP-1 stock

In contrast, 2025 has been painful for shareholders of Novo Nordisk (NYSE:NVO). The pharma stock has fallen 39%, as I write. This reflects fears that the Wegovy maker has fallen badly behind rival Eli Lilly in the GLP-1 weight-loss drugs space.

Since the summer of 2025, Novo shares have crashed more than 60%!

The company has also faced pressure from online pharmacies selling cheaper compounded versions of its injectable Wegovy treatment. This has seen it deliver profit warnings in the past 12 months, as well as replace its CEO.

However, Novo recently became the first firm to have a GLP-1 oral pill approved by the FDA. This came after a late-stage study showed it safely helped patients lose an average of 16.6% of their body weight.

Obviously, a daily Wegovy pill should expand the market opportunity to millions of overweight people who are scared of needles. And the firm announced the starting dose will be available for just $149 per month in January 2026 via direct-to-consumer telehealth channels.

This could help it undercut compounded injectable versions of Wegovy, as well as reaccelerate sales next year. It also improves its competitive standing with Eli Lilly, which isn’t expected to get FDA approval for a GLP-1 pill till March, at the earliest.  

Competition is still a risk here. But with the stock trading at less than 15 times next year’s forecast earnings, I think it’s an opportunity worth thinking about.

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Naturally, investors are drawing parallels between today’s stock market and the dot-com bubble that popped in 2000. So, are we witnessing speculative mania, or is this just the dawn of the AI growth story?

Since it was the catalyst for the hype, I thought it fitting to ask ChatGPT itself.

Boom, euphoria…panic?

The chatbot immediately flagged signs of a possible bubble. ChatGPT cited AI companies’ extremely rich valuations, which may exceed realistic earnings growth projections. This comes at a time when mega-cap tech stocks dominate the S&P 500 like never before.

Passive investors, take note. Many index funds, especially US-focused ones, have significant AI exposure, offering narrower stock market diversification than in decades past.

ChatGPT outlined two potential scenarios. First, it cautioned that AI stocks could plummet by up to 50%. However, resilience in other sectors, like energy and healthcare, would limit falls in the wider market to around 15%. In a more catastrophic scenario, ChatGPT suggested the market might nosedive by over 30%.

Although it acknowledged a collapse wasn’t inevitable, the digital doomsayer was unequivocal: “The AI bubble is likely to trigger the next stock market crash.”

ChatGPT’s limitations

How seriously should I take this warning?

ChatGPT’s a handy tool, but it produces information based on user prompts, rather than genuine understanding or conviction.

Its response to another question was revealing. I asked whether the rally in AI stocks was sustainable, reversing my original query’s premise. Surprisingly, ChatGPT said yes. Despite including some boilerplate caveats, there’s an obvious contradiction with its previous answer.

Clearly, the AI helper simply remixes sources and regurgitates data. It’s not an adequate substitute for thorough stock market analysis or a comprehensive philosophy like Warren Buffett‘s value investing approach.

AI isn’t the only game in town

For investors worried about a potential bubble, there are exciting stocks beyond the AI sector. One worth considering is Danish pharma giant Novo Nordisk (NYSE:NVO), which develops drugs for conditions like diabetes and obesity.

Weight-loss medicines are a hot healthcare trend right now. Novo Nordisk, the maker of semaglutide injections Ozempic and Wegovy, was once the undisputed champion in this arena.

Aggressive competition from Eli Lilly and its rival product Mounjaro has since eased Novo Nordisk’s stranglehold on the market. The group lost its first-mover advantage due to supply chain bottlenecks and limited manufacturing capacity.

It’s now battling for market share against copycat medications. Shareholders also face risks from possible new drug tariffs threatened by the Trump administration. Unlike skyrocketing AI shares, the Novo Nordisk share price has fallen 55% in 12 months.

But the stock looks cheap today at a price-to-earnings (P/E) ratio below 13. Promising trial results for a semaglutide pill could put the wind back into the firm’s sails. No company has yet secured regulatory approval for an oral version. Since many prefer pills to needles, this could be a gamechanger.

If the business regains its competitive edge, Novo Nordisk shares could rebound dramatically. This value investment play deserves a closer look in a stock market ruled by pricey AI companies.

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That’s certainly what investors of Novo Nordisk (NYSE:NVO) have experienced first-hand recently. Over the last 12 months, the once surging pharmaceutical giant has seen almost all of its gains evaporate, with its market cap shrinking by 60% since last September.

What happened? And could investors now be looking at a dirt cheap long-term buying opportunity?

The downfall of Novo Nordisk

As a quick reminder, Novo Nordisk is a global pharmaceuticals business focused on chronic diseases like diabetes and obesity. And in recent years, investors fell in love mainly due to its blockbuster Ozempic and Wegovy GLP-1 weight-loss drugs. So much so that between July 2020 and 2024, the growth stock surged more than 300%.

Yet as excitement wore off and reality set in, the explosive growth potential of the GLP-1 market started to show some cracks.

Challenges in insurance reimbursements limited patient access, resulting in slower penetration within the obesity market. At the same time, rising competition from rivals like Eli Lilly started eroding the group’s market share. And to make things worse, the patents for the active ingredients of Ozempic and Wegovy have started expiring in key markets, allowing generic manufacturers like Hikma Pharmaceuticals to swoop in and undercut everyone.

Combined, these factors led to a massive downward revision of growth expectations, triggering a sharp drop in share price. Obviously, this is bad news. But with the price-to-earnings ratio now sitting at just 14 versus the pharmaceutical industry average of 24, have investors overreacted? And if so, is this growth stock now a potential bargain?

Exploring recovery potential

Despite encountering numerous challenges, Novo Nordisk remains a global leader in the diabetes and obesity treatment sectors. New clinical data is emerging demonstrating cardiovascular benefits of Wegovy, allowing its drug to stand out among rival alternatives.

At the same time, new GLP-1 treatments are currently being developed to overcome the patent expiration problem, including Amycretin, which is approaching phase three trials and is available as a tablet rather than an injectable.

These drug candidates could be the key to reigniting momentum as well as expanding into adjacent treatment areas. And if investors start to see fresh signs of life, a sharp upward correction in Novo Nordisk’s share price could emerge as excitement surrounding the growth stock returns.

That’s why overall, despite the ongoing challenges, Novo Nordisk has a strong development pipeline of new products. And with new management at the helm, combined with a compelling valuation, patient long-term investors may want to consider taking a closer look at this enterprise.

The post After crashing 50%+, is this a bargain-basement growth stock? appeared first on The Motley Fool UK.

In recent years though, Fundsmith has been underperforming the market. Consequently, investors have been pulling money out of it over the past 12 months.

Should I go against the crowd and invest today? Here’s my view.

Keeping it simple

Fundsmith’s three-step investing philosophy is famously very simple: “Buy good companies, don’t overpay, do nothing.”

In theory, there’s no reason why this formula shouldn’t beat the market long term, assuming the stock selection is sound. Looking at the top of the portfolio, I see names like Meta Platforms, Microsoft, Visa, and IDEXX Laboratories. Those look very sound to me.

Meanwhile, some of the fund’s founding principles — such as avoiding market timing and short-term trading — chime with my own long-term investing approach. On this basis, I would feel comfortable investing in Fundsmith.

Worrying trend

Last year, it gained 8.9% versus 20.8% for the MSCI World Index. While beating the market every single year is not realistic — and not holding Nvidia certainly didn’t help — I still found 2024’s relative underperformance disappointing.

As we can see below, Fundsmith hasn’t beaten the index since 2020, and it lost 1.9% over the six months to 30 June this year.

The long-term outperformance since inception in 2010 is still intact, but it’s a worrying trend.

Nauseating Nordisk

Smith blamed the recent half-year result on Novo Nordisk (NYSE: NVO) and a weak dollar: “Novo Nordisk alone accounted for almost all the underperformance during the period. Its ability to snatch defeat from the jaws of victory in respect of its leadership in weight loss drugs continues to be remarkable.”

As a fellow Novo Nordisk shareholder, I share his exasperation. Shares of the Danish pharma giant are down 51% over the past year.

Novo makes Wegovy, the blockbuster weight-loss drug. It recently launched in India, where it’s reportedly selling like crazy.

In theory (that dangerous phrase again), this should be a golden age for the stock.

Instead, investors are focused on the competitive threat from rival Eli Lilly, which makes Mounjaro. Trials show that it strips more weight than Wegovy, meaning Novo risks losing share in this lucrative global market. The firm has already fired its CEO.

Stepping back, Novo stock looks great value at 16.7 times forward earnings. So investors might want to consider it as a cheap way to invest in the weight-loss drug market (which I doubt will be dominated solely by Eli Lilly).

Will I buy Fundsmith?

Referencing the fund’s five biggest positive contributors in the first half, Smith quipped: “We continue to make money with old friends.” Though it should be noted that Novo is — or perhaps was — an old friend too.

Fundsmith aims to “produce a high likelihood of a satisfactory return rather than the chance of a spectacular return which could be spectacularly good or spectacularly bad.”

Picking stocks for my ISA portfolio is delivering a very satisfactory for me. Weighing things up, I will continue with this strategy rather than outsource it to Fundsmith.

The post Should I buy Fundsmith Equity for my Stocks and Shares ISA? appeared first on The Motley Fool UK.

Whatever returns are made are theirs to keep, with the contribution limit set at a generous £20k a year.

But how long could it realistically take to become an ISA millionaire? Let’s take a look.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Powerful wealth-building vehicle

Boiling it down, the two key things are the amount contributed and the return on investment.

In other words, someone generating a 7% average annual return on a yearly investment of £5,000 is going to have to wait a lot longer than another achieving 10% on £20,000 invested every year.

For the former, it would take about four decades to reach £1m, whereas the person maxing out the full contribution limit each year would get there in just 19 years.

Indeed, the difference is so stark that the £20k-a-year ISA investor generating a 10% return would see the value of their portfolio rise above £8m after 40 years!

I should mention that these calculations assume that dividends are retained rather than spent. Ideally, they should be reinvested to fuel the compounding process.

I also haven’t factored in platform fees, which are a real cost that needs to be accounted for (they differ with each provider).

Still, the wealth-creating potential of the ISA is incredibly powerful for everyday investors. Reminding myself of this keeps me motivated to invest regularly.

Which stocks to buy?

There isn’t one single investing style to build wealth in the stock market.

Warren Buffett, for example, built an empire investing in businesses that he understood well. He looked for a margin of safety with the valuation, sticking to established and profitable companies with long track records.

As Buffett memorably put it, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. Buying an average company at a high price is a recipe for poor returns in the stock market.

Many other investors have made fortunes taking on more risk by investing in disruptive growth companies. Think Netflix as streaming started taking off 15 years ago, or Tesla in 2012 before electric vehicles went mainstream.

The Goldilocks zone

Arguably, the sweet spot is finding a wonderful company with strong growth prospects that is trading at an attractive valuation.

One potential example I see at the moment is Novo Nordisk (NYSE: NVO). This healthcare giant is a leader in diabetes and GLP-1 weight-loss treatments through brands like Ozempic and Wegovy.

The stock is down a whopping 54% since September!

The reason is that Novo Nordisk has fallen behind arch-rival Eli Lilly in the race to develop a GLP-1 pill (Wegovy is currently an injectable medication). So there’s a risk the company is losing its leading market position in this lucrative space.

Yet Novo Nordisk is still expected to grow strongly over the next few years, according to most analysts. And the global weight-loss market is projected to exceed $150bn in future — far too big to be dominated by any one company.

Meanwhile, the stock is trading at just under 14 times next year’s forecast earnings, and offering a 2.5% dividend yield. At $65, I really like the risk/reward setup and think it’s worth considering.

The post £20,000 Stocks and Shares ISA: how long would it take to reach £1 million? appeared first on The Motley Fool UK.

Here, I want to highlight a pair of shares that I think are worth considering for income right now. They’re in very different industries.

Aviva

First up, we have Aviva (LSE: AV.), which is the UK’s leading insurance group. This FTSE 100 stock is sporting a forward-looking dividend yield of 6.6%. That’s well above the 3.6% average of the blue-chip index.

Aviva’s yield is still high despite the share price rising 24% year to date.

In 2024, the insurance giant’s operating profit jumped 20% to £1.7bn, as general insurance premiums increased 14% to £12.2bn. Growth was strong in all three of its core markets (the UK, Ireland, and Canada). 

Aviva has been strategically shifting its focus to capital-light businesses in a bid to boost profits. In line with this, it’s in the process of acquiring rival Direct Line for £3.7bn. While it says this will create synergies and a stronger competitive position, it does open up an element of risk. Acquisitions don’t always pan out as expected, and can actually increase costs rather than the other way around. And this one is hardly small.

Nevertheless, I like the look of this stock for passive income. The valuation appears very reasonable, with the shares trading at 11 times forecast earnings for 2025. Combined with that 6.6% yield, which looks affordable based on expected earnings, I think there’s decent value on offer here.

Novo Nordisk

Shifting gears to a bit more growth now, we have Novo Nordisk (NYSE: NVO). This healthcare stock’s fall from grace has been swift and brutal — it’s down 54% in just eight months!

However, this slump has pushed the dividend yield to a level that I think looks attractive. Over the past few years, the yield has been in the 1%-2% range. Right now though, the forward yield for 2026 is close to 4%.

Novo Nordisk is a global leader in diabetes care and weight-loss treatments through GLP-1 drugs Ozempic and Wegovy. But the latest news is that US rival Eli Lilly‘s Zepbound beat Wegovy in a head-to-head trial of the two blockbuster drugs. Across five weight-loss targets, Zepbound stripped more weight off patients.

Meanwhile, President Trump is signing an executive order to bring down the price of prescription and pharmaceutical drugs in the US. So this is also causing some concern around future earnings pressure.

This uncertainty is reflected in a seemingly very cheap valuation. After its crash, the stock’s forward price-to-earnings ratio for 2026 is just 13.5. That’s low for a growing pharma giant, albeit one facing very stiff competition in a key growth market.

The anti-obesity industry is tipped to reach $150bn a year within the next decade. So Novo Nordisk’s products should still enjoy robust demand, even if it has to settle for less market share and pricing power.

It’s also actively expanding its pipeline with several ongoing clinical trials targeting obesity, although success isn’t guaranteed.

Dividends also aren’t guranteed. But given the likelihood of strong future earnings growth, the payout looks safe to me. For long-term dividend growth investors, I think Novo Nordisk looks attractive and worth considering.

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Here, I’m going to highlight three top-class dividend stocks that I believe are worth considering right now. In my view, all offer significant value at current prices.

A defensive stock with a 4% yield

First up, we have Reckitt (LSE: RKT). It’s a consumer health and hygiene company that owns a ton of well-known brands (Dettol, Durex, Vanish).

Now, this isn’t the most exciting stock. But it’s defensive in nature as many of its brands are relatively recession-proof and that’s a valuable attribute today given the elevated level of economic uncertainty globally.

Zooming in on the dividend, it’s quite attractive. For the 2025 financial year, analysts expect a payout of 209p putting the yield at roughly 4.3%.

The valuation also looks attractive. Currently the price-to-earnings (P/E) ratio here is only 14. In recent years the ratio has been much higher.

It’s worth pointing out that there’s still some uncertainty here regarding baby formula litigation, which has hit its share price. Several years ago, Reckitt was hit with lawsuits alleging that its infant formula caused a severe intestinal disease.

All things considered, however, I like the passive income potential.

Strong dividend growth expected

Those looking for something a little more exciting may want to check out US-listed pharmaceutical stock Novo Nordisk (NYSE: NVO). It specialises in diabetes products and GLP-1 weight-loss drugs (it’s the maker of Wegovy and Ozempic).

This stock has taken a huge hit recently and I think there’s an opportunity — I’ve been buying it for my own portfolio in recent weeks. At present, the company is priced as if rival Eli Lilly is going to capture the entire GLP-1 market!

I don’t think that’s likely. That said, competition from Eli Lilly and other companies is a risk.

After the share price fall, the dividend yield looks attractive. Currently, it’s 3.1% for 2025 and 3.8% for 2026 (note the strong dividend growth expected).

Add in the fact that stock trades on a P/E ratio of just 16.5, and there’s a lot to like. It’s worth pointing out that this year, revenue is expected to rise about 18% so this is looking like a classic ‘growth at a reasonable price’ stock.

Out of favour with the crowd

Finally, we have Diageo (LSE: DGE). It’s the owner of Guinness, Johnnie Walker, Tanqueray, and many other well-known alcohol brands.

This stock is really out of favour at the moment. And it’s not hard to see why.

Right now, the outlook for alcoholic beverage companies seems a little murky. Not only are younger generations drinking less, but the GLP-1 weight-loss drugs mentioned above are resulting in lower demand for booze.

I don’t think people are going to stop drinking entirely any time soon, however. And I still see long-term growth potential here given the company’s top-shelf brands.

Turning to the dividend yield, it’s currently about 3.7%. That’s relatively attractive (and miles higher than the 10-year average yield for this stock).

Given that yield, I believe this stock is worth considering at current levels. The P/E ratio is 16, which isn’t high for a company of Diageo’s ilk.

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Specifically, I had been cut by a couple of falling knives called Diageo and Moderna. My strategy was to return to backing proven winners and companies on an upwards trajectory.

But four months into the year, I’ve just broken this plan. How so? Well, I added to my holding in healthcare giant Novo Nordisk (NYSE: NVO), which had fallen 60% in 10 months.

Here, I’ll explain why.

A still-growing business

Returning to Diageo and Moderna, these were companies I thought had exciting long-term futures (in premium spirits and mRNA technology respectively).

However, their near-term prospects looked cloudy, with weakening sales. Consequently, there was a lot of pessimism surrounding the pair, which I thought was overdone. But I underestimated the severity of their operational challenges and both stocks kept falling lower after I doubled down.

By contrast, Novo Nordisk is a leader in diabetes and GLP-1 weight-loss medicines — two areas that are still growing strongly. This year, the company’s revenue is expected to increase 18% to around $52bn, with a similar rise in earnings per share.

Looking further ahead, forecasts have revenue topping $70bn by 2028. Therefore, this doesn’t appear to be a company whose growth trajectory is in any real peril.

So why on earth did the stock plunge 60% inside one year?

Rising competition

The chief culprit is Eli Lilly, the company’s arch-rival in the lucrative GLP-1 weight-loss treatment space. While Novo Nordisk currently holds a market-leading position through its blockbuster injectable drugs Wegovy and Ozempic, Eli Lilly is winning the race to commercialise a daily weight-loss pill.

In short then, the market’s worried about rising competition. This largely explains why the stock has crashed, though uncertainty around tariffs also continues to weigh on the overall pharmaceutical sector.

Turning to telehealth platforms

To shore up its market position in the here and now, Novo recently signed deals with US digital health providers to sell Wegovy at discounted prices through their platforms.

Meanwhile, Novo Nordisk is selling the treatment at starting prices of $499 a month on its own direct-to-consumer online pharmacy (NovoCare). This should help keep sales high, though margins could take a bit of a hit due to the discounted prices.

Attractive valuation

The stock’s risen nearly 10% since I broke my ISA vow and topped up at $60. However, it’s still trading at just 14 times forecast earnings for 2026. That looks very cheap to me, despite the rising competitive threat from Eli Lilly.

According to forecasts from the World Obesity Federation, the number of obese adults will hit around 1.53bn by 2035. So the addressable market here is simply enormous. This could see sales of GLP-1 drugs for type 2 diabetes and obesity rise above $150bn in the 2030s, up from around $50bn last year. And reports say these treatments are finally set to be recommended by the World Health Organisation (WHO) in August.

Fact is, it’s unlikely Eli Lilly will totally corner this massive market. So I see Novo Nordisk stock as a cheap way for me to invest in this global mega-trend.

The post I broke my 2025 Stocks and Shares ISA plan by buying this stock while it was down 60% appeared first on The Motley Fool UK.

Contributions receive tax relief — between 20% and 45%, depending on income — that can also be invested to boost long-term growth.

Over time, this can build a significant pot for retirement, even from modest sums of money.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Regular investing

For instance, let’s say a basic-rate taxpayer invests £200 in a SIPP every month. This means they would get another £50 paid in a few weeks later in the form of pension tax relief. The total would therefore amount to £250 per month, or £3,000 per year.

Were they to achieve a 9% average annual return from their investments, this would grow to nearly £160,000 after 20 years.

Keep it going for another decade, the final pot would be £425,790. A significant sum for many people.

The benefits of diversification

Now, I should mention that these calculations don’t include any platform fees or dealing charges. And a 9% return isn’t assured, as stocks can lose value as well as rise. Dividends may also be cut.

The good news is that diversification can go some way to offsetting these risks. For example, owning a few dividend payers would cushion the blow if one cancels its payout, while a basket of growth shares can often make up for one or two that flatter to deceive.

Stock example

To give a real-world example, my own SIPP currently has 21 stocks, as well as a small handful of investment trusts. This means it has a pretty good level of diversification.

That’s a good job because one stock has certainly disappointed recently — Novo Nordisk (NYSE: NVO). Shares of the Danish pharmaceutical giant have cratered 59% in just 10 months in my SIPP!

Novo is a global leader in diabetes care, controlling around 33% of the market. And through its injectable Ozempic and Wegovy treatments, it also currently has the lion’s share of the fast-growing GLP-1 weight-loss market too.

In Q4, sales of obesity drug Wegovy surged 107% year on year, helping drive net profit 29% higher to almost $4bn. Very strong stuff.

However, arch-rival Eli Lilly recently reported robust Phase 3 results for its oral GLP-1 candidate orforglipron (admittedly a bit of a mouthful!). Lilly says this daily pill will be easier to manufacture, and unlock access for millions of patients who are scared of needles.

It could also erode Novo’s dominant position in the lucrative GLP-1 market. This explains why the stock has shed so much weight and is now trading on a forward price-to-earnings ratio of just 14 — a very low multiple.

At that valuation though, I think the stock is worth considering. This is particularly true given the global anti-obesity drugs market is expected to top $100bn by 2035.

Unfortunately for me though, I’ve backed the wrong weight-loss horse so far.

Still worth it

Despite the risks of manging a DIY pension, I think it’s worth the effort.

For someone starting in their early 20s, the example SIPP above would be worth a whopping £1.64m by the time they retired at 68, assuming the same 9% return and £200 monthly investment.

When combined with a workplace pension, that would certainly make retirement much more comfortable.

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