There are thousands of articles on the internet offering tips and advice on how to achieve a comfortable retirement. Some of these are sensible, while others could be downright dangerous to your wealth and health.
For example, investing in shipping containers and parking spaces. The ads for these investments might be touting 10%+ annual returns, but these returns do little to compensate for the horror stories I’ve heard about investors losing everything to one of these schemes.
The reality is, you don’t need to take a lot of risks to achieve life-changing returns on your savings.
Also, you don’t need to put your money into illiquid, costly investments, like property. A buy-to-let property might seem an attractive asset to own in retirement at first, but do you want all the hassle of having to manage another property as well as your own?
And surely, you want your money to be working as hard as possible for you? Figures show that between January 1990 and January 2015 a £100,000 investment in UK shares would be worth £662,756, compared to £297,000 for property on average.
Equity investing
All of the research on the best investments to hold for the long term shows that shares are by far the winners. Equity returns over the past few decades have outperformed all other assets, and I believe this trend will continue for the foreseeable future.
‘Pound cost averaging’ is a simple trick you can use to get the most out of the wealth-creating power of the stock market. Simply put, pound cost averaging means investing a little in the market every month.
The benefits of this strategy are numerous. Firstly, today most investment platforms offer automated monthly investment plans, so you don’t even have to think about saving. Second, by investing at regular intervals, more shares are purchased when share prices are low and fewer shares are purchased when prices are high meaning that you will benefit from falling markets — where there is the most money to be made.
Unlike investing a lump sum, by using pound cost averaging, the investor will be better off in falling markets.
Buy low, sell high
Everyone knows buying low and selling high is the way to profit from investing but in reality, swimming against the current isn’t easy. Pound cost averaging effectively automates the process, so you don’t even have to think about what the rest of the market is doing.
The returns from using this strategy can be outstanding. Insurance group Zurich produced a simple study on pound cost averaging several years ago. In the study, two hypothetical investors deployed £6,000, one as a lump sum and the other in monthly £500 payments. A hypothetical index was used as the investment. Over the course of the year, the index rose and fell, ending the year where it started. In this study, investor A didn’t see any return as the £6,000 lump sum was still worth £6,000 after 12 months. However, investor B’s money had grown to £7,050 because of being able to buy at much lower prices offered throughout the year.
As most investment platforms now allow you to invest on a monthly basis with a starting investment of just £50, almost every investor can benefit from this strategy. So, what are you waiting for?
