More of us are making the investment decisions when it comes to saving for retirement. It's simple to open an Isa or self-invested personal pension Sipp. If you can fill it with "buy and hold" funds then it reduces the attention you need to dedicate to it but advisers warn that you must always keep a careful eye on asset allocation.
How you divide your money between shares, cash, bonds and property — and any others — is crucial, and should change in time along with your own circumstances.
What drives each of us to save can differ enormously, yet the purpose of your investment will largely dictate the investments you choose. With life expectancy across the UK rising at a surprisingly fast rate, having enough money in retirement is a sure-fire goal for most of us. Many will have others, such as funding school fees or saving to buy a larger house. There is no one-size-fits-all approach and it is best to talk to a financial planner or independent adviser if you're unsure.
To give you some ideas and to establish some basic guidance, we have talked to some of the best in the industry about how to invest through the ages. Nine things you need to know about the new pension freedoms. Is your pension firm ready to give you full access to your money? Your first task is to set up a home for your money. Using a fund supermarket or broker, you can open an Isa and place investments in it without the help, or the cost, of an adviser.
Select one according to how easy its website is to use, how much it costs see our table here , the quality of customer service it offers as well as the range of investment choices available.
Once you have the account set up you can start building your portfolio. Since time is on your side when you're young, you can afford to load up on equities.
Experts say between 80pcpc of your portfolio should be dedicated to stocks and shares. Look at income-generating funds next, which are an important element of a portfolio as reinvested income provides the lion's share of total returns — thanks to compound interest. This is the term for generating income from previous income. Investment trusts are useful too, as they can create steady returns by squirrelling away up to 15pc of their dividends each year and use this money to boost dividends in difficult years.
You can add global funds in following years. Look at diversified global equity funds to gain exposure overseas. You might also want to look at adding alternative investments such as property to increase diversification.
During this decade you will hopefully build on the successes of your thirties and potentially add significant sums to your investments as your earnings rise. Now is a good time to invest some of your money in bond funds — albeit with a low allocation of around 20pc. Strategic bond funds are widely favoured among advisers, as managers have discretion over the type of fixed-interest assets they hold. This is particularly important in an environment where interest rates might start to rise, which would be bad news for fixed-interest assets.
While taking an income is an option typically used by retired people, younger, working investors might need help to pay regular bills such as school fees, for example.
The City of London Investment Trust grew its annual dividend for the 48th consecutive year in By now, many will be approaching their maximum earnings. This is also the time when children, even if they are still living at home, are likely to be costing less and hopefully starting to earn for themselves.
Mortgage costs should also be reducing. You can now allocate more of your money to fixed income, again using strategic bond funds to allow the manager to limit the damaging effects of any forthcoming interest rate rises bond prices tend to fall when rates rise.
Within your equity holdings, you may want to look at protecting the wealth you have grown by using funds designed to preserve capital.
Miss Hasler tips the Newton Real Return , which aims to avoid the permanent loss of capital over the long term, and Legg Mason Income Optimiser , which invests in fixed income and aims to dampen volatility.
You can also limit volatility using a multi-asset income fund which invests in a range of assets. They can help capture the growth of various asset classes at a risk level to suit you, as managers can dip in and out of a wide range of markets on your behalf.
Now is also a good time to increase exposure to alternative investments that can provide additional diversification and protection from sharp market falls. Typically, this would be the time when investing heavily in equities would be out of the question. But many people will have another 20 years of retirement and so to pile into bonds and cash might be unwise. Experts differ on how aggressive an investor in their sixties might be. Some suggest investors should have just 15pc in equities — and the rest in bonds.
Others say you might want a much higher proportion, at 35pc in equities or even 50pc. Remember that over year spells, stock markets have mostly made great investments so bear this mind if you don't expect to need access to the money for several decades.
The pensions revolution coming in April that will allow all savers to access cash in their pension funds directly could mean a surge in appetite for income funds as people shun buying annuities.
It is essential to have a mixture of investments from which the income is derived, using a blend of equity income and bond funds. It will also be important to protect the capital you are now drawing on from inflation.
The primary objective of the Standard Life Global Absolute Return Strategies fund is to protect your capital but also continue to seek investment opportunities.
You might want to seek advice on structuring the right retirement plan to deal with any complexities, in which case you should seek the help of an independent adviser.
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A light-hearted quiz about the gaping maw of financial misery that perpetually threatens to devour us all. Accessibility links Skip to article Skip to navigation. Saturday 02 December In your forties During this decade you will hopefully build on the successes of your thirties and potentially add significant sums to your investments as your earnings rise. In your sixties Typically, this would be the time when investing heavily in equities would be out of the question.
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