Saving for your pension is something that the experts tell us we should start doing as soon as possible. Doing so gives you the most time to build up the biggest pot of money for retirement.
However, simply putting your money into a current account and leaving it there is not enough. Instead, you need to think about investing your cash for your pension to grow. Then, how you invest for retirement is something that does need continual monitoring. Making use of various financial products available helps create an effective investment strategy.
It is highly beneficial and strongly recommended to modify your investment strategy the older you become. Here, we look at what investments a 50 year could consider. We also explore why your investment strategies should change as you get older and other tips for investing in your 50s.
Why investment strategies should change
While making the first steps to start saving for your pension is great, you still need to do more to ensure you can afford your retirement. Doing so will ensure you have enough income each month to do what you want when you want.
For that reason, you should stay abreast of not only how much you have saved, but where and how. The reason being is down to how your tolerance to risk slowly changes over time. The closer you get to your retirement day, the more risk-averse you become. For, should your investments lose value, you have less time to recoup those losses before you retire.
Additionally, over time, many other factors change in your life, which will affect your risk profile. You likely have a very different income level to what you were earning in your early 20s. Your outgoings are likely to be different too. You may have fully repaid your mortgage, or your children may be starting to leave home. In this respect, you may have more money spare to invest in your pension as a result.
Investments suitable for 50-year-olds
Now that you are getting that bit closer to retirement, you are probably more risk-averse. As a result, you need to think about moving some of your riskier assets into safer places. Below, we discuss several asset classes and how they relate to your lower risk tolerance when you reach your fifties.
Bonds are seen as one of the safer investments on the market. Buying a bond is like giving a company money that they are contractually obliged to repay to you - with interest. Bonds are comparatively stable, given that contractual obligation. If a company were to go bankrupt, you would be first in line to recoup any cash available at its liquidation.
Depending on the location and property itself, property is an investment you shouldn’t overlook when you hit 50. While it is widely recommended not to put all your money into property (or any one asset class), it can be an excellent way to diversify a portfolio. It can also be an expensive initial investment. You must consider fees such as stamp duty and capital gains tax, too. However, rental income can be an excellent way to top up your retirement fund. Plus, if you get the market right, your property value can increase at the same time too.
Stocks are a riskier asset class than bonds. However, that does not mean they are automatically an asset class to steer clear of in your 50s. Instead, you may just want to minimise your exposure to them in your portfolio of investments. Keeping some stocks is, to a certain extent, a good idea as the upside to them can be very worthwhile. The returns they can offer may far outstrip those of bonds.
ISAs are a popular financial product for good reason. They are tax-efficient, as the interest earned from them is free from income tax or other tax charges. There are currently two types of ISA that you can open. A Cash ISA and a Stocks and Shares ISA. The latter will be the riskier of the two. However, a Stocks and Shares ISA can offer better returns than a Cash ISA which will simply provide a flat interest rate throughout. Consequently, some financial advisors may recommend moving away from Stocks and Shares ISAs the later into your 50s you get. Cash ISAs will be seen as safer meaning you are far less likely to lose any value of your initial investment.
Investing in a prepackaged fund that already has been structured in a way that meets your risk profile can be beneficial. Doing so is also a form of passive investing as you simply buy units of a fund to redeem when you need in your retirement (or sooner). Looking for funds that invest in bonds and other safer assets as well as stocks is vital. Doing so will help mitigate against the risk of losing investment value.
Tips for investing in your 50s
Staying on top of your investments and savings is critical at any stage in your life. When you are in your 50s, you need to tailor your investments to reflect your stage of life with your retirement day under 20 years away. That may sound like a long time, but leaving things to chance could mean that your investments were not optimally structured. As a result, you may have left your assets in riskier places leaving you more vulnerable to your pension pot losing money. The right portfolio structure for your age and risk profile is a better way of managing your money. It will ultimately help protect you against financial hardship in the future.