Investing In Your Retirement: The Basics

As an adult it’s never too early to be thinking about saving for retirement – as long as you have an income that allows you to. The ways in which you can squirrel away money to ensure your later years are comfortable are incredibly varied – from the new financial year fixed rate ISAs to long term bonds to equity investment.

We take a look at some of the basic need-to-know facts about investing for your retirement.

Investing for retirement is about long term goals

Investment is most successful when your goals are long term. If you’re trying to save money for retirement while you’re a decade or two away, you have a great length of time in which to invest.

It’s important that you do not invest your entire nest egg in equity or stocks. You need a combination of different types of investments to ensure no disasters strike.

When to start investing in stock

When looking into investing in the stock market it’s important to make sure you are financially ready in order to avoid any disasters. You also need to be certain you have considered the investment risk as discussed by boutique wealth management firm Investment Quorum.

Here’s a brief checklist that should help you figure out if stock investment is for you.

• You should have at least 6 months worth of salary saved as a rainy-day fund.
• The money you want to invest should be money you can afford to lose, even though you probably don’t want to.
• You must have some risk tolerance.
• You need to be patient.

If you’re expecting your portfolio to zoom upwards immediately then think again. The reason stock and equity investing is a good option when you’re thinking about your future retirement is because it really can take a long time. You have to be thinking in years, not months.

Having a diversified portfolio

We’ve all heard this phrase but people often don’t quite know what it means. In regards to retirement it means that you will want to be investing some of your money in a variety of different stock as well as putting money into bonds and low risk saving options.

If your retirement is over 20 years away…

You should think seriously about investing about 75% of your portfolio into stock and stock funds. This is because over time stock brings on a greater return than bonds – however they are also riskier. You need to have a good amount of time between now and your retirement in order to rectify any heart-stopping dips in your stocks value.

As your retirement nears you should transfer more of your portfolio into bonds

Bonds have a much lower risk value but also make less of a return. You don’t want to see a big drop in the worth of your portfolio only a few years before retirement when you do not have as much time to make it back up. A bond often provides you with a slow and steady return and thus is good option if you have already reaped the rewards of a long term stock investment.

If you have the funds and still have over a decade or two until retirement then it is a wonderful time to invest in a variety of bonds, ISAs or NISAs and stock. You have the time to be able to take risks which could make you a big return – and once you’re happy with the amount you’ve made you can transfer it from the riskier investments into safer ones and watch it grow more slowly and risk-free.