If you’ve just turned 50, you still have the best part of two decades to invest before you’ll be eligible to draw your State Pension. That’s enough time to make a big difference to your income in retirement, even if you haven’t managed to save anything up until now.
Even if you are 59, it’s not too late to start saving and investing for retirement. But don’t delay. Here are two investments I’d make right away.
A solid investing base
I’m assuming that you’ve already accepted the need to save as much from your income each month as you can. And if you’ve been reading other articles from The Motley Fool, you can probably guess that I’m going to recommend that you invest that money in stocks and shares rather than save it in a low-interest cash savings account.
But once you’ve set up your tax-efficient wrapper, such as a Self-Invested Personal Pension (SIPP) or a Stocks and Shares ISA, which investments should you hold within it as the ultimate destination for your monthly savings?
Right away, I’d go for a low-cost, index tracker fund that could form a solid base for my investment portfolio. The great thing about index tracker funds is that they do away with single-company risk because your investment will be automatically spread across many underlying companies’ shares.
Tracker funds also deal with fund-manager risk. Not many fund managers beat the market, and for the privilege of average performance, the fund fees will likely cost you an arm and a leg, which will eat into your returns. But it can be worse than that. What if you pick a really badly performing fund manager, such as Neil Woodford recently. His stock-picking was so poor that he did worse than the overall performance of the stock market as followed by low-cost tracker funds. Yet the Woodford funds still charged high fees – ouch!
A dynamic index
These days, you can get tracker funds that follow all sorts of markets and in just about every geography around the world. But for this first-base investment, I’d go for something relatively low-risk and general, such as a tracker that follows the FTSE 250 index of the UK’s mid-caps. The FTSE 250 contains the 250 next-largest public limited companies on the London stock market after those in the FTSE 100.
The FTSE 250 is a dynamic index, packed with many firms that have plenty of growth left under the bonnet. You’ll also get dividend income, and I’d be sure to select the ‘accumulation’ version of any tracker fund because it automatically reinvests the dividends for you, thus helping to compound your investment over time. The alternative is the ‘income’ version, which pays dividends to you as you go.
For my second investment, I’d either diversify into a second index tracker following another area of the market, such as America’s S&P 500, or select a quality stock such as those identified regularly on The Motley Fool.
