2 mistakes Britons make when investing their retirement savings in the FTSE 100

Here’s how most investors could improve their retirement savings prospects when buying FTSE 100 (INDEXFTSE: UKX) shares.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While investing in the FTSE 100 can be a great move when it comes to retirement savings, the reality is that it is easy to make mistakes. Here are two fairly common mistakes which most investors are likely to have made at some point. Avoiding them could help to boost your total returns and enjoy an improved retirement from a financial perspective.

High-yield shares

Whether investing during retirement or in the period leading up to it, many investors focus on the shares which offer the highest yield. While this may seem to be a logical means of generating a high-income return, in the long run it may not be the best method. That’s partly because dividend growth can matter more than current yield in the long run. A stock with a yield that is similar to the FTSE 100 but that is set to increase shareholder payouts rapidly could generate a higher income return over a five or 10-year period than a stock with a high yield now but modest dividend growth.

Furthermore, some high-yield shares are unpopular among investors due to poor operational or financial performance. This could lead to a disappointing income return if dividends are cut, or if the stocks become increasingly unloved by investors. As such, a 6%+ yield could easily be offset by a capital loss of the same amount each year. Focusing on a business as a whole, including its financial prospects, may be a better idea than simply buying the highest-yielding shares in the FTSE 100.

UK focus

While there are a number of excellent companies that are focused on the UK, the FTSE 100 provides investors with the potential to invest in stocks that are internationally-oriented. Many investors, though, choose companies that they know from their daily lives, or whose products they use regularly. While there is no harm in buying familiar stocks, the reality is that the growth potential of the world economy is likely to remain higher than that of the UK economy over the coming years. This could provide investors with stronger rates of profit growth should they look outside of the UK economy.

This point is perhaps especially relevant due to the risks involved in the Brexit process. Although there is still time for a deal to be signed between the UK and the EU, the reality is that a no-deal scenario is becoming increasingly likely.

Clearly, nobody knows exactly how a no-deal Brexit will progress, and it could even prove to be a positive thing for the UK economy in the long run. However, in the short run it could mean that volatility and uncertainty rise, with the potential for declining investor sentiment towards UK-focused shares. As such, investing in a broad range of companies with exposure to different geographies could be the best way of investing retirement savings in the FTSE 100.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »