Invest And Succeed

Are you financially prepared for retirement?

For the majority of people the answer’s no, but it doesn’t have to be. If you haven’t taken control of your pension, it’ll be invested in what’s called a ‘default’ fund which, in most cases, is a poor investment and won’t increase your wealth anywhere near enough to live comfortably in your older years. The good news is it doesn’t take a lot of work to restructure your pension in a way which will prepare you for a more comfortable retirement.

The state pension is a monthly payment which is paid to anyone who’s eligible. It isn’t enough to live on for most people and shouldn’t be relied on as a means to survive. The other problem is that the age at which you become eligible is always rising and will hit 68 by no later than 2046 – most likely much sooner. There’s also no guarantee that the government will still be paying this when we eventually do retire, increasing the need to take things into our own hands.

Knowing where your money’s invested.

Do you know where your pension is invested? Have you ever taken control of your pension pot? The scary fact is that a lot of people don’t know the answers to these questions. Worse still we’re all led to believe that our pensions are a fantastic way of increasing our wealth and preparing for our future.

The vast majority, around 90-95 per cent, stick with their employer’s default fund, whether it really suits them or not. Wether this is due to lack of knowledge, lack of interest or lack of understanding, this is causing the average employee to miss out on substantial increases in total return.

What is a default fund?

Default funds tend to play investments safe because employers don’t want to get blamed for costly mistakes that endanger their staff’s pension savings. Most of these funds are trackers, although some are actively run to a certain extent.

Research by Hargreaves Lansdown suggests that ditching the default fund and proactively picking your own investments can dramatically boost your eventual retirement pot. You don’t need to be an ‘active’ investor. By simply choosing a defined pension split dependant on your age, you can let compound interest work it’s magic.

The younger you are, the luckier you are as compound interests greatest attribute is time. Compound interest is simply your money earning interest, and that interest being reinvested to earn more. The whole thing can be explained in a simpler way, by thinking of it a snowball rolling down a hill. The further the snowball has to roll (time) the more snow it will accumulate (interest.) The faster it rolls (rate of return) the further it will travel and bigger it will get (total return)

There’s a lot of misinformation surrounding investing on the internet. Even popular ‘money saving’ websites who generally have the publics best interests at heart will advise people against investing, often overstating the risks involved as almost guaranteed and avoiding the fact that this is the best and most efficient way of putting your money to work. Put simply, if you earn a basic wage and have limited savings, investing can help you to get maximum returns from your money, and is often the only way of becoming financially stable later in life.

This is originally what pension funds were designed for.

Here are some books to help you get started with your investment education.

The little book of common sense investing – John C Bogle.

Common stocks and uncommon profits – Philip A Fisher.

The most important thing – Howard Marks

Charlie Munger; The complete investor – Tren Griffin

The Warren Buffett Portfolio – Robert Hasgtrom

These books are all able to offer basic and fundamental investing know-how to the reader, and hopefully aren’t too complex for any investor no matter their level of experience.

The simple answer is – No.

You cannot value something that produces no income, therefore you cannot accurately put a price on Bitcoin or gold. Anybody who tells you they can is either a time traveller or a liar, wether they know it or not.

Neither of these ‘commodities’ are businesses, nor can they increase what they offer beyond the obvious. For example a business can retain earnings, buy back shares if they believe they offer value, acquire new companies, increase their dividend etc.. therefore when someone ‘predicts’ the future price of either Bitcoin or Gold, they’re predicting (or rather hoping they can predict) what the general public’s views will be regarding the future price. Or more fittingly, what the general public believe the general public’s views will be regarding the price at that time and so on..

To choose a metaphor for comparison – If you go into your favourite brand and choose a pair of shoes, could you accurately estimate how much they’d cost? You could probably get close. But could you accurately estimate what the majority of total strangers think they’d cost? We can all admit it becomes more difficult and therefore less likely. But valuing gold or bitcoin is like trying to predict what the total strangers think the rest of the total strangers think they should cost.. and if you can accomplish this then you’re far superior than me!

Index investing is a passive investment strategy that attempts to generate returns similar to a broad market ‘index’ such as the S&P 500, which is simply the 500 biggest companies in America put into one big group.

In this example, investing in one ‘share’ of the S&P 500 index fund would be the same as buying a small portion in each of these 500 individual companies. The size of the ‘portion’ that each business makes up is determined by the size of the company. For example, Microsoft, Apple, Amazon and Facebook make up over 10% of each ‘share.’

There are several advantages of index investing. For one thing, research finds index investing tends to outperform active management over a long time frame. Taking a hands off approach to investing is an ideal investment strategy for those of us whom A) Don’t have the time to sift through various companies financial reports, B) Don’t want to sift through various companies financial reports due to lack of either interest or knowledge. These two groups are our target audience. These two groups are also most likely to fall victim to the notion that pension funds will provide a satisfactory return on your original investment, or to become enticed by the empty promises of active hedge fund managers/companies who need to return usually 5% just to have you break even after their fees.

TO BE COMPLETED…….