Building a retirement savings account that is valued at £1m+ is a goal shared by many investors. It’s likely such a nest egg could provide a generous income in older age that allows a retiree to enjoy financial freedom.
Clearly, building a portfolio that’s valued at £1m+ is going to be a tough task. However, following these three steps could make that task easier.
Perhaps the most obvious place to start when contemplating how to build a retirement portfolio is tax efficiency. In other words, ensuring that you’re taking advantage of the various tax-efficient accounts that are available.
A Stocks and Shares ISA shields an investor from income tax, capital gains tax, and dividend tax. It’s relatively easy to set up and manage, with the fees for doing so having fallen in recent years.
Although such taxes may not impact many investors in the short run, over a period of decades they could really add up if a portfolio is held in a bog-standard sharedealing account. Therefore, taking the time to ensure you have an account that avoids tax in the long run could have a surprisingly large impact on the size of your nest egg.
While cash is generally viewed as a poor asset in the long run, due to its low historic returns relative to other assets, having some cash within a portfolio can be a shrewd move.
Recessions and bear markets are incredibly difficult to predict, while stock market corrections can take place without any prior warning. As such, having some cash on hand to take advantage of potential buying opportunities could help to improve returns in the long run.
Holding a limited amount of cash may also be especially prudent at present, with global economic and political uncertainty on a high.
Investing in trends
Although predicting the future is challenging, focusing on global economic trends can help an investor position their portfolio for growth. For example, emerging markets currently continue to be one of the main growth stories of the world economy, with wage rises expected to lead to increasing demand for a variety of consumer goods.
Likewise, the increasing use of artificial intelligence in a variety of industries may lead to growth opportunities. And with the world’s population forecast to rise and age rapidly over the next few decades, investing in sectors such as food production and healthcare could deliver impressive returns.
By investing in a range of high-quality companies operating in sectors expected to enjoy a tailwind, rather than a headwind, it may be possible to benefit from a relatively high rate of growth over the long run.
Doing so in a tax-efficient account with cash on hand to capitalise on short-term price movements may improve your chances of retiring with a million.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.