So you’ve got off to a great start with your career and are now thinking about preparing for retirement. You have already started a pension, either through your workplace, an ISA, or a personal pension plan. With around a quarter of those nearing pension age unable to afford the costs of retirement, planning for retirement is now more important than ever. The question is now, what else can you do to protect your investments, and grow them so you have plenty of financial security when the time comes to retire? One answer to this question, is make sure your portfolio is sufficiently diversified.
What’s the Benefit?
When you retire, it’s possible you’ll want to buy a house in a prime location, or maybe continue your entrepreneurial dreams by opening a small business. While home mortgages or taking out a small business loan, are certainly options, you’ll want to have some capital to work with as well. The big benefit to making sure that your investments are diversified across numerous asset classes, is the ability to protect your capital. By choosing diversified investment options you reduce the risk that you will lose all your investment capital. If one area isn’t performing well, diversification improves the chances that other investments will be performing well, thus minimising the risk of investing.
What Investments Should You Have in Your 20s and 30s?
Investments are typically spread across four main asset classes: shares, cash, bonds, and property. Some experts recommend that you change what percentage of your overall portfolio is invested in which class of assets with age. If you’re on the younger side, say in your 20s or 30s, buying shares that have the potential to generate more income, but that may involve more risk, should make up the bulk of your investments. The goal here, is to generate money that can be reinvested, or compounded.
What Investments Should You Have in Your 40s, 50s, and Beyond?
These are typically the decades where you’ll want to start pulling your investment capital out of higher risk equities and switching to bonds with a fixed interest rate. Although rising interest rates may affect the performance of this types of investment, they are considered lower risk. As you approach retirement looking at further diversification can also help provide the maximum amount of protection for your invested funds. So you may want to look into buying property, collectables, or other hard assets when you reach this stage.
Whatever investment strategy you ultimately decide on, the important thing is to choose investments that you are comfortable with and that you are likely to derive the most benefit from. If you are unsure what investments will be right for you at any stage of life, talking with a financial, or investment advisor is always a good option.