Why you need to be sensible when investing for retirement
Investing for a comfortable retirement is an ongoing process, not a one-off exercise.
You will need to check you are on course to achieve the required level of income when you give up work as interest rates and returns from different assets may change over time.As you get closer to retirement you may also want to change the shape of your investment portfolio. Higher risk and higher return options make sense if you have at least 10 years until you retire.
This allows time for the value of your portfolio to recover if there is a sudden correction in the markets. The Barclays Equity Gilt Study 2018 shows that anyone investing in UK stocks for 10 years has beaten the returns from cash 99 per cent of the time.
As you get closer to drawing funds from your pension you will want to turn to less volatile investments – such as government bonds – which offer guaranteed income and reasonable security of return. And while new pension freedoms allow you to remain invested in your retirement there is still an onus on ensuring your capital is protected.
There are two tax-efficient vehicles available to you to invest for retirement: a Self-Invested Personal Pension (SIPP) and an Individual Savings Account (ISA).
What should you invest in?
A long-standing guide to help investors devise and manage their portfolios is the so-called ‘Rule of 100’. Simply take 100 and subtract your age from it – the resulting figure represents the maximum percentage of your portfolio which should be placed in riskier assets like equities and commodities.
According to this rule, a 30-year-old who invests might have 70 per cent of their portfolio in equities and commodities and 30 per cent in cash and bonds while a 60-year-old could have around 40 per cent in the stock market and 60 per cent parked in the bank or government bonds.
Even if you have plenty of time to ride out periods of market volatility you may not have much appetite for risk.
A possible approach is to consider multi-asset funds. These help take care of diversification for you with asset allocations to suit investors at different stages of their investment journey.
BNY Mellon Real Return
Someone with a long investment time-frame could consider BNY Mellon Real Return (formerly known as Newton Multi-Asset Income). The fund has just over half of its holdings in international equities and has a mandate to provide income with a mandate for capital growth over the longer term.
Quilter Cirilium Conservative
One of a range of funds serving different risk appetites, Quilter Cirilium Conservative (formerly known as Old Mutual Cirilium Conservative) was launched in 2012 and is at the other end of the spectrum with around 75 per cent of its assets in cash and bonds. As such it could be suited to someone who is nearing their retirement.