Should You Save for Retirement or Invest?

Should You Save for Retirement or Invest?

Let me guess…you’ve finally realised the ‘You only live once’ attitude isn’t a sustainable motto to live by, and you’ve succumbed to the idea that preparing yourself financially for later life might be for the best.

But when should you start? And what’s the best way to go about it?

Retirement may seem like an eternity away, but the truth is no matter what age you are it’s never too early to start planning for it. In the wise words of my grandfather…well…he couldn’t remember the exact phrase.

Anyway, let’s have a look at some of the most popular ways of growing your nest egg:

Saving cash in a pension scheme:

  • Saving your money in a pension scheme is by far the most popular choice. Pensions are popular because of the level of security they offer; they are deemed to be very low risk.
  • What’s more, any approved pension scheme usually offers some degree of tax relief.
  • Reassuringly, and perhaps best of all, your savings are kept out of arms-reach until after a certain age, meaning there’s no chance of blowing them on a mid-life-crisis-induced round the world boating expedition!
  • It’s also nice to know that if you die before a certain age and you haven’t spent your savings, they can usually be passed onto loved ones in the form of a tax-free cash sum.

Investing money in stocks:

  • Generally, investing in stocks is thought to be riskier than saving in a pension scheme. However, this risk is usually more associated with short-term periods.
  • Over long-term periods, stock prices tend to be more predictable, and with the correct financial advice you can grow your nest egg substantially more through investment in stocks.
  • Having said this, it’s certainly not unheard of for people to lose their life’s savings on the stock market.
  • By investing in stocks you’re technically gaining a small percentage of ownership in a company. This means that the better the company does, the greater your payout will be. Many serious investors like to buy cheap stocks in small start-ups in the hope that these companies will go on to be successful. However, this carries great risk. For retirement purposes it’s wiser to invest in companies with proven track records that are unlikely to go bust.

Investing money in bonds:

  • While stocks represent an ownership interest in a company, bonds are essentially fancy IOUs. Instead of being paid dividends, bondholders are paid interest on their investment.
  • Generally, investing in bonds returns less money long-term than investing in stocks. They are, however, considered less risk during short-term periods, meaning less hair-raising moments!

Diversifying the risks:

Spreading money across different types of savings and investments is a way of building a strong retirement portfolio. By not putting all of your eggs in one basket, you reduce the risk involved.

Along with an approved, personalised pension plan, investing in stocks is essential in generating enough money to allow you to live a comfortable retirement. However, Given the potential volatility of stocks, it’s essential to supplement these investments with investments in bonds. This allows you to capitalize on the long-term benefits of stocks whilst enjoying the relative stability of bonds during stock market downturns.

The earlier you start putting your money to one side, the more chance you have of generating wealth in the long-term. Establishing your own personal goals is at the heart of planning successfully for retirement, so consulting financial advisors needs to be a part of that. By failing to prepare, you are preparing to fail, and that couldn’t be truer when it comes to retirement. Perhaps that’s the phrase my grandfather was struggling to recall…

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