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How I’d invest for retirement today

Planning for retirement is always a challenging process. Ultimately, nobody knows exactly when they will retire, what their financial commitments will be prior to then, nor how long they will require an income post retirement.

However, a few simple rules can help to make the process of retirement planning much easier. With the stock market having fallen from a record high achieved in the middle part of 2018, there may be a larger number of appealing investment opportunities that help to boost your retirement savings plans.

Dividend growth

While there are a number of stocks which offer high dividend yields at the present time, searching for companies with strong track records of dividend growth could be a shrewd move. A rapidly-rising dividend suggests that a company has a management team confident in its long-term outlook. It also indicates the business is in a sound financial position, with its rising dividend likely to be affordable and backed by an increasing bottom line.

A fast-growing dividend can also cause stocks to become increasingly popular among investors. Income investors may gravitate towards them, which could increase demand and help to push their share price even higher. And with the reinvestment of dividends a major part of total returns over the long run for many investors, stocks with growing dividends could make a significant impact on an individual’s retirement savings prospects.

Diversify

While Brexit has brought the performance of the UK economy sharply into focus in recent months, the risk of disappointing GDP growth is a constant for all investors. Wherever an investor is based, there’s always a chance that their domestic economy will underperform other nations, as well as the world economy.

Therefore, it makes sense to diversify between companies which operate in different locations across the world. Doing so may help to reduce risk, and could also enhance returns as investors may gain access to higher growth rates in specific regions or countries which lead to faster rising share prices.

No trading

While buying and selling shares may be fun, holding onto companies for the long term could have a positive impact on the value of a retirement nest egg. Commission charges can quickly mount up, while it takes time for any company to deliver on its potential. As such, providing it with the time it needs to deliver improving levels of profitability is a worthwhile idea. And with the impact of compounding significant over an individual’s working life, holding the best shares in a portfolio over a period of many years could lead to surprisingly high returns.

Prospects

While it’s difficult to plan for retirement, even investing a modest amount each month can make a real difference to the level of financial freedom enjoyed in older age. An investment of £5 per day in the FTSE 250 over the last 20 years, for example, would now be worth around £100,000. As such, getting started as early as possible with small amounts of capital could be a crucial step in successfully planning for retirement.

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