If I hadn’t built up any retirement savings by the time I turned 40, I’d go online and set up a Stocks and Shares ISA right away.
It isn’t that difficult to do. There are plenty of online investment platforms to choose from, including AJ Bell, Bestinvest, Charles Stanley Direct, Hargreaves Lansdown and Interactive Investor. All that’s needed are a few personal details and a debit card, and an investor should be ready to trade.
Taking out Stocks and Shares ISA is the easy bit. Every UK adult can invest up to £20,000 a year in any stock or investment fund of their choosing, and all their capital growth and dividend income will be free of tax for life.
I’d set up a Stocks and Shares ISA fast
Choosing which investments to buy is more complicated. We should all have some cash in an easy-access bank account, to cover emergency spending, but this is no place to leave long-term wealth.
At age 40, retirement is still at least 25 years away for most people (and possibly more than that). Over such a lengthy period, history shows that money should work much harder if invested in the stock market.
Nobody should invest in shares for less than five years. Such a short timescale doesn’t give investors enough time to recover from stock market volatility. Also, the longer money is invested, the more opportunity it has to compound and grow.
That’s especially so if I reinvest all the company dividends I receive straight back into my portfolio, to buy even more shares.
Being a newbie investor can be nerve-wracking. I’d start with a relatively small sum, say £1,000. Or maybe just £500, to see how things go. The simplest way to invest would be to put the money in a tracker fund that follows the performance of a UK-based index, such as the FTSE 100 or FTSE All-Share.
Funds such as the iShares Core FTSE 100 or Vanguard’s FTSE All-Share Index give investors exposure to a spread of different companies, to diversify and reduce risk. However, at the Fool, we favour buying individual stocks instead.
I’d buy individual FTSE 100 stocks
We believe that building a spread of different companies can help investors outpace the wider market over the longer run. This is more complicated than simply buying a tracker fund, but should ultimately be more rewarding, we believe. Just remember that capital is not guaranteed, and stock choices could rise as well as fall.
Right now, there are loads of top companies on the FTSE 100 trading at low valuations. This has been a volatile year for markets, but that makes now a good time to enter them.
The big question is working out which stocks to buy from the thousands available. We think this is the fun part. Fool.co.uk is packed full of views and opinions on a huge range of mostly UK stocks. If I had no savings at 40, I’d start right here.