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Whatever your age, whether you are a bright young thing fresh on to the career ladder or an experienced, wise owl on the cusp of retirement, one thing that you should be doing is investing for your retirement. At the risk of sounding like a broken record, state benefits are not going to be sufficient to sustain you through your twilight years so the onus is on you to provide for yourself.
A balanced investment account should be based on your circumstances and your tolerance for risk but equally as important is your age. Your asset allocation, namely how you divide up your investment pot between shares, bonds and cash, will change over the course of your lifetime.
Here is a handy guide to investment considerations, whatever stage you are at in life :
Youth is on your side and means that you can afford to lean towards a riskier asset portfolio and invest a higher proportion of your savings in shares. If you are prepared to accept possibly wild fluctuations in value, the higher risks can mean higher rewards. If your risks don’t pay off you have time for your investments to bounce back and recuperate the shortfall. There is also plenty of time for you to fix shortfall issues by changing your lifestyle, or increasing your savings.
Which leads me on to my second point : get into the habit of saving while you are still young. Compound interest is your greatest ally in your youth, turning even modest savings into an attractive pot of cash by the time you reach retirement. Keep a buffer of cash savings which are easily available to you to get you through periods of unforeseen financial difficulty.
Read up on the tax benefits of different pensions and savings vehicles (for example an ISA in the UK) so that you can make the most of any tax breaks available to you and maximise returns on your savings.
Mid-life savers are often at the peak of their earning potential and are likely to have a good understanding about how their careers and future earnings will pan out. The realities of retirement may well start to dawn now and you should get a firm handle on your pension requirements, and how long you have left to save enough to cover them.
At this stage you should start to reduce the amount of money you put into higher-risk shares and look towards investing more in minimal risk assets such as bonds. You can maintain a portion of your investment funds in equities. If share prices take a dive, you still have a reasonable number of working years to recuperate losses, increase savings or readjust your retirement plan by working longer or reducing your pension requirements through lifestyle changes.
As the value of your investments increases, tax considerations will play a more important role in your asset allocation and the management of your portfolio. Mid-life investors should ensure that they are making tax efficient investments which keep in line with changes to legislation. A financial planner can advise.
Your tolerance for risk is much reduced once you pass fifty – you can no longer afford to take big risks with your investments as you have far fewer years to recoup any major stock market losses. Gambling with your retirement fund is a bad idea and your asset allocation should shift largely to minimal risk investments – fewer shares and more bonds. You may also want to consider investing in shares which pay guaranteed dividends to give you an income.
As you get older, estate planning may become an important element of your financial planning and the structure of your portfolio may take into account how you want to pass assets on to your children and grandchildren.
At this stage of your life, you should be reviewing any pension and state benefits you will receive and getting a handle on how your retirement income compares to your expected expenditure. Any shortfall will need to be covered either by your investment income, purchase of an annuity or liquidation of some of your assets.
Whatever your age, you will find a financial planner essential in helping you to plan for a comfortable retirement and to get the best out of your investments.
Get in touch to speak to an Infinity consultant.
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