Think investing is just for the rich? Or maybe just for the old? Who has the spare money these days?
Well you’d be wrong. Chances are, you’re already an investor yourself, even if you didn’t realise it.
You probably have money invested in the stock market with your pension. Just over ten years ago, the UK Government introduced “auto enrolment”, where employers were obliged to start a pension for their employee unless they opted out, to address the decline in private pensions and to make long-term savings the norm.
Since it started, more than 10 million people have been enrolled and are therefore invested – that’s 88 per cent (or 9 out of 10) eligible employees, according to the Office of National Statistics. It’s a huge increase from the four out of ten people that had workplace savings a decade ago.
So, how to improve your prospects? The best way is to engage with your pension, and your investments. If you think pensions are boring, perhaps think of it like this: your retirement is 20-30 years of holidays. Where do you want to go? Skegness, Spain, or the Seychelles?
The first thing to do is take control and connect with your investments – find out what your pension is invested in and see how it is performing. Your employer will be able to help you with this.
Many auto enrolment pensions get invested in a “default fund” or a “lifestyle fund”, but there are other options.
If you are building your own portfolio, and have at least 10 years until retirement, I’d suggest starting with a UK equity fund, a global equity fund, a bond fund, and a defensive fund. You can then add different funds that pique your interest over time and as you gain confidence.
Ideas to consider would be funds like Liontrust Special Situations (which invests in UK companies of all shapes and sizes), T. Rowe Price Global Focused Growth Equity to give you exposure to other economies and markets, TwentyFour Dynamic Bond (which can invest in all different types of fixed income) and LF Ruffer Diversified Return to help in times of market stress.
If you are looking for a one-stop-shop, maybe consider a fund like VT Momentum Diversified Income or Aegon Diversified Monthly Income – each of which invest in a variety of assets and produce a nice level of income in the form of dividends (when you get a thank you in the form of money every three months usually) to boot.
Remember to regularly monitor your investments though to make sure they are keeping you on track to reach your retirement goals and to adjust as your circumstance change. Also consider your personal tolerance to risk (can you stomach stock market ups and downs?) and the length of time you have to invest. The longer you have, the more risk you can afford to take.
For most people, building a diversified portfolio will be best as it means you are not going to be counting on just one investment to do well for you. A mix of funds invested in different asset classes like equities and bonds would do the trick – or a fund or two investing in all these assets already.
The number of investment options available to you might appear overwhelming at first, but you can get help narrowing down the choices by looking at funds recommended by independent researchers like boringmoney.co.uk, morningstar.co.uk, trustnet.com and fundcalibre.co.uk.
Another way to boost your prospects is by increasing your contributions. This will happen automatically as your salary increases, but you could also choose to increase your contribution from say 5 per cent to 8 per cent.
Over the long term, this could make a substantial difference to your ultimate retirement pot. You can use a workplace pension calculator to help you work out how much is currently getting paid into your pension.
Then think about putting all your pensions in the same place. If you’ve moved jobs, it’s likely you have a number of small pension pots. Individually they may not look like much, but if you consolidate them into one larger pot, it could inspire you to save more. And if you’ve lost the paperwork or are unsure about old pensions, don’t worry – the government can help you track them down.
Finally, have a conversation about your investments. Whether it’s with your partner, family, friends, a financial intermediary, or an adviser, the more you talk, the more you’ll understand and the better able you’ll be to take control of your future finances.
Darius McDermott, managing director, Chelsea Financial Services