Have you yet to make preparations for your financial future?
If so, you’re not alone. According to The Express, one in five working Brits have no retirement savings to speak of. Meanwhile, The Telegraph finds that Brits are ‘worst in the world’ at saving for retirement.
Happily, when it comes to retirement savings and sound investing strategy, geography is not destiny. As a first-time investor eager to make your mark in the market and ensure that you have enough left at the end of your working days to live out your retirement in comfort, you need to mind several important matters. Here they are, in no particular order.
Your Workplace Pension Scheme May Not Be Enough
Most working Brits have access to workplace pension schemes through their employers. Workers who meet the following criteria qualify for automatic enrolment, meaning no action is required on their part to benefit:
- Classed as ‘workers’
- Between age 22 and State Pension age (variable)
- Earn at least £10,000 annually
- Ordinarily work in the U.K. (detailed guidance found here)
Depending on your income, employer, and the details of your scheme, your employer will pay a portion of your pension scheme’s contributions. You’ll also be required to put in funds from your own paycheque. It’s unlikely, however, that these combined contributions will suffice — you’ll also need to maintain private investments in tax-advantaged and non-tax-advantaged accounts.
Your Investment Advisor Matters
If you haven’t already done so, speak with a credentialed investment advisor who can walk you through the basics of investing strategy. Look for an advisory firm that takes a global approach to investing as this provides additional opportunities for diversification. It’s also useful to find one that operates with minimal biases or conflicts of interest. Remember, your advisor is your partner in financial health. It’s their duty to win your trust, not the reverse.
Don’t Forget Your ISA
Your investment advisor will no doubt advise that you supplement your workplace pension scheme with a tax-advantaged individual savings account (ISA).
In 2017 and 2018, you can put away up to £20,000 annually in your ISA. ISAs come in four ‘flavours’:
- Lifetime ISAs (reserved for a narrower group of savers)
- Cash ISAs
- Stock and shares ISAs
- Innovative finance ISAs
You must be 16 years of age to open a cash ISA and 18 years of age to open any other variety of ISA.
Diversification Is Essential
No matter how or where you choose to invest, diversification is essential. Every investment advisor takes a slightly different approach to the market, but most if not all agree that ‘putting all your eggs in one basket’ is not a sound strategy.
Timing the Market Is Hard — Particularly On Your Own
While it is possible for savvy investors to beat index averages with properly timed transactions, those who can do so consistently are rare and no one knows the future. This is why many investment advisors tell clients not to try to ‘time the market. It’s unwise for inexperienced investors to try to time the market on their own, so if you’re going to embrace an active, aggressive strategy, you’ll want a seasoned advisory team behind you.
Persistence Pays Off
No matter how old or young you are, nor what the market does or doesn’t do whilst you’re invested, don’t lose heart. Even active investors seeking to time the market do better when they invest regularly, rather than in frantic spurts separated by long droughts.
Nothing in Life Is Free
Every investment instrument carries a cost. As a rule, active investors pay more in commissions and fees due to high trading volumes and other factors, but they stand to reap higher returns as well. Passive investing is a lower-cost, lower-risk, lower-reward affair. Just know that there’s no such thing as a ‘free ride’ in the investing world. Don’t listen to any advisor who tells you otherwise.
Don’t Go It Alone
Even the most well-adjusted Brits find the prospect of taking full responsibility for their investments to be a worrisome endeavour.
Fortunately, there’s absolutely no rule that says you need to manage your finances alone. As noted above, the right investment advisor can make all the difference in your effort. If you haven’t already done so, start weighing your choices and reaching out to those that seem best suited to your needs. Financial freedom, and the valuable peace of mind that comes with, await.