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Retirement saving: why I’d avoid buy-to-let property, Premium Bonds and FTSE 100 tracker funds

There are many different ways to grow your retirement savings. However, some investment strategies are more effective than others. If your goal is a comfortable retirement, picking the right investments is essential.

With that in mind, I want to highlight three investments I believe have minimal appeal from a retirement savings perspective right now. I’ll also briefly explain where I would invest in the current financial environment.


Buy-to-let (BTL) property has made thousands of Britons wealthy in the past as UK property has historically generated excellent returns. Yet looking ahead, I think there’s a good chance returns could be far less lucrative.

For a start, Brexit adds considerable uncertainty in relation to house-price growth. House prices in the UK are already extremely high relative to wages, and a Brexit-related economic downturn could place significant pressure on prices.

Additionally, the government has really cracked down on buy-to-let in recent years, making the asset class way less attractive from an investment point of view. Stamp duty on BTL property is substantial, and there are now many regulations that add to the costs of ownership. Overall, the asset class doesn’t have a lot of appeal right now, in my view.

Premium Bonds

Premium Bonds are another asset I would avoid. The reason for this is that these bonds pay NO regular income at all, meaning they’re a pretty poor long-term investment.

Sure, Premium Bonds pay out prize money, but the odds of winning big are stacked against you. As the Money Advice Service says: “Most people will win smaller prizes or nothing at all.” So if you’re looking to grow your wealth, Premium Bonds are probably not the best investment option.

FTSE 100 tracker funds

Finally, while I’m a big fan of the stock market, I’m not convinced investing in a FTSE 100 tracker fund is a good strategy either.

The main reason I say this is that I see the FTSE 100 as a rather backward-looking index. For example, its top constituents include oil companies, banks, and tobacco companies – all of which have been tremendously successful in the past, yet are likely to face considerable headwinds in the coming years.

For the five years to the end of June, the FTSE 100 generated annualised returns of just 6.1% – and that was in a bull market. Looking ahead, over the next five to 10 years, I think there’s a chance returns could be even lower than that.

How I’d build my portfolio today

So, where would I invest? Well, my strategy would revolve around the stock market. But instead of just lumping all my money in a FTSE 100 tracker, I’d build a diversified portfolio that includes:

  • A selection of high-quality FTSE 350 dividend growth stocks in order to build up a growing income stream.

  • A selection of high-quality FTSE 350 and AIM growth stocks in order to boost the growth of my portfolio.

  • Top-performing global equity funds such as Fundsmith and Lindsell Train Global Equity in order to get exposure to some of the world’s leading businesses, many of which are listed outside the UK.

A diversified portfolio containing these kinds of assets would give me a good chance of generating returns of around 8-10% per year. That kind of return would certainly help me grow my retirement savings.

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Edward Sheldon has a position in Fundsmith Equity and the Lindsell Train Global Equity fund. 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.