Building a pot of money to last you in retirement can seem a daunting prospect. Even more so if you’re starting from scratch in your 40s. With a bit of planning, however, this is certainly achievable.
Start retirement saving…Now
A lot of people have put off the idea of investing in the belief they need a lot of money to get started. This simply isn’t true. Most brokers only require you to put as little as £25 a month to work.
It really is amazing what a sum like this can grow to over time. Invest £25 every month for the next 30 years (very roughly the time 40-somethings have before taking retirement) and you’ll end up with just under £50,000, based on achieving an annual return of 10%.
Of course, the return could be lower or higher than this — we can’t say for sure. However, we do know that shares beat all other assets when it comes to growing your wealth over the long term.
Cut costs where you can and simply get started on your retirement pot journey.
Avoid the pre-retirement tax grab
If you want to boost your chances of being rich by retirement time, it makes sense to hang on to as much profit as you can along the way. One way of doing this is to make sure you buy shares within a Stocks and Shares ISA, or Self-Invested Personal Pension (SIPP).
While there are quite a few differences between these accounts, both allow you to shield your gains from the taxman. Nor will you pay any tax on dividends that you may receive from the shares you own.
This really matters over the long term, because it means more of your money will be allowed to compound.
Having opened an ISA and committed to putting some money aside every month, the next step is deciding what to buy. You could take a very general approach and buy a ‘target date’ fund. As it sounds, this invests your money based on when you expect to retire.
Importantly, it adjusts which assets your money is invested in as time ticks by. This means very little maintenance will be required over the 30 years or so that you’ll be invested for.
For those who want to boost their returns, however, you can’t beat buying quality stocks at great prices. Even initially-expensive-looking shares can turn out to be solid investments if a company can keep growing.
Those in their 40s who really want to make big money by retirement age should also consider holding small company stocks, either individually, or within a fund. These firms are more likely to grow faster than larger, more established companies, albeit at greater risk.
Buy the trend
Another way of boosting your savings is to buy into companies that have exposure to major themes such as, say, clean energy, video gaming and biotechnology. These industries have exceptionally bright futures. The earlier you can catch the investment wave, the greater your chance of retiring rich.
Tapping into these high growth stories doesn’t need to be complicated either. Investment managers, such Blackrock (iShares) and VanEck, offer a huge variety of index funds tracking major investment themes. Importantly, the fees charged for holding these funds are cheap, allowing you to retain more of your profits.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.