Investing your pension savings wisely, can make the difference between a comfortable retirement, and a penny pinching one. In fact, if you manage your pension investments well, you may find you have the money to retire a little earlier than you thought, if that’s what you want. So read on, to find out what the options are, when it comes to an investment strategy for your pension.
Your Investor Profile
Your age matters when it comes to pension investments. If you’re younger, you should be looking for investments that will grow your money quickly, such as shares. If you’re older, you need to reduce the risk and accept that this may mean a lower return. These facts about you make up your “investor profile” which can help decide what kinds of investments you should make.
Unless you have a defined benefit pension, for example, a final salary pension, you can normally decide where the pension company should invest your money. If you don’t make a decision, the pension company will choose a safe, middle of the road option for you. But this may not be the best way to maximise your retirement income, especially if you are younger and able to chase bigger returns by accepting a little more risk.
Choosing An Investment Option – Managed Pensions
Your pension company will offer a range of funds, selected by its investment advisors. The funds will focus on different aspects of the market – for example, a fund might concentrate on investments in technology companies, or in companies trading in Europe. The fund invests by buying shares in these companies. The government’s Money Advice Service has a good explanation of the basic investment strategies followed by the pension companies, and lots of other pension information.
The fund may also buy bonds. These are IOUs written by governments and large companies when they borrow money. Most people look for a fund that invests in a range of UK and global shares, and bonds. This way the investments are spread widely and a downturn in any one market is probably offset by an upturn for another asset in the portfolio.
Choosing Your Own Pension Investments
If you have a private pension can make their own investment decisions. For some, this becomes a fascinating hobby, and they become expert investors. However, it does take up a bit of time, and others would rather go to a provider who can make suggestions based on their age, income, attitude to risk, and intended retirement age.
The state pension age may continue to rise, so that the state pension becomes something paid only at an advanced age. Some people will be happy to continue working. But others will want to call it a day earlier, and they will be faced with funding the gap between finishing work and receiving the state pension. So it will pay to explore other options as soon as possible, to ensure that you get the retirement you deserve.