The £164.35 per week you can get from the State Pension isn’t the kind of money that would provide a luxury retirement, and if you want to live a little better then you’re going to need some other income.
For most that comes in the shape of company pensions and Self Invested Personal Pensions (SIPPs), with the latter putting you in control of your own money and able to make your own investment choices.
And within a SIPP, I reckon blue-chip company shares are best, especially for those with decades to go before retirement. Shares do have a habit of beating all other kinds of investment hands down over the long term.
What shares should you actually buy? Most people asking me that are the kind of folk who don’t much like risk and are wary of seeing a stock investment crash and burn. The key to managing risk is diversity, and one easy way to achieve that is to invest in a low-cost index tracker — one that, for example, aims to follow the performance of the FTSE 100. But I think you can do better.
Fund management
I’ve always liked fund managers, but not for them to manage my cash for me. No, I don’t want to pay charges to a company whose primary responsibility is to its shareholders rather than to its customers. But the answer to that is surely to be a shareholder by buying shares in the company itself.
On that score, there were two companies that I’d had my eye on for some time — Standard Life and Aberdeen Asset Management. And now they’ve merged to form Standard Life Aberdeen (LSE: SLA), I definitely like the look of the result.
One thing I like about an investment in Standard Life Aberdeen is that it’s more than just an investment in one specific company in one specific sector. It’s bagging a share of the profits from the totality of the company’s worldwide investments, and that’s effectively getting you some diversification with just a single investment.
Interim results
The combined company had assets under management totalling £627bn at its halfway stage reported in August, from which it made an adjusted pre-tax profit of £521m. Earnings can be up and down year-on-year, but the company manages to keep its dividend growing progressively and providing a healthy return.
You might balk at the share price chart over the past 12 months, which is currently showing a 25% loss with the firm suffering net fund outflows since the merger. I can’t help thinking a lot of that is due to uncertainty of the combined operation, and one thing the City really dislikes is uncertainty.
Big dividends
But I see those fears as being already reflected in the share price, and I see the upside as pretty convincing now. And one thing the price fall has done is boost the forecast dividend yield to around 7.5%.
What other similar investments are there? I hold Aviva myself and I’ve always liked the look of Legal & General. Or maybe something like Man Group, a rare opportunity for small investors to get into hedge funds.
I wouldn’t put all of my retirement savings into the fund management business, for sure, but I reckon it’s a good place for some of it.
