7 Things To Consider For Your Retirement
- The sooner you start, the better off you will be
Money invested accrues compounding returns. What does that mean? You earn money on money. The longer your funds are invested, the better off you will be.
$10,000 invested now at 5% for 20 years will be worth $26,532 gross
$10,000 invested in 10 years at 5% for 10 years will be worth $16,288 gross
If you add in regular contributions during that period, then you will be even better off. These figures are calculated before fees and taxes. The return is an example only, it does not reflect actual returns.
If you are in retirement, take steps to see how long your investments will last you. You can look at different strategies to improve lifestyle or longevity of your funds.
- Consider your lifestyle now and how that will change in retirement
How much money do you want to spend in retirement and how much will your costs be?
This will involve completing a budget. Be as honest with yourself as you can be. Do you want to rely on government super?
What’s on your bucket list? What is most important to you?
- Risk and reward are related
Growth assets include property and shares, and to some degree fixed interest bonds. Over time, shares have provided the greatest returns to investors, followed by property. The more exposure to growth assets you have, the more you will be rewarded for it. The composition of your portfolio will determine the level of risk and therefore reward you receive. However, growth assets are more volatile so you need to be prepared to invest for the long term.
4. Diversification improves the probability of achieving your goals
The table below illustrates after asset allocation and strategic tilts towards known risk premiums, the difference between holding 45 assets vs 1000 assets over 1,5 and 10 years. Diversification reduces your risk. See my previous blog entitled “cover me” for more detail on the importance of diversification.
- Discipline is Key
Markets will rise and fall. While taking risk is one thing, being able to hold your position in the face of adversity is another. History tells us you will only be rewarded for your discipline. In 2008 the ASX 300 Index dropped by 38.9%. The next year it returned 37.6%. If you bailed out in 2008 your performance as an investor may look like this.
It’s not only the markets that will test your discipline. The media with so called investment and property gurus, hot picks, shares to dump and other get rich/poor quick schemes can influence your decisions. The media are after views and clicks to sell advertising. Investing is boring and certainly not trendy. Saving your money and investing wisely does not sell.
- Investment Strategy and Performance
The performance of your investment is important.
There are different strategies and philosophies you can implement to achieve your goals. So which way do you go? That will depend a lot on your appetite for risk, your desire for your investments to perform better than the markets, your willingness to pay fees and probably most importantly how much certainty you want when it comes to the achievement of your goals. These are all things that should be considered by you and your advisor.
- Ownership Structure and Tax Efficiencies
Considerable savings and therefore gains can be made by having your investments efficiently structured to minimise tax. This can range from taking advantage of different assessment methods to ownership structures. The savings can be substantial and the larger your portfolio the more magnified these can be. This is where the services of a specialist taxation adviser are worth their weight in gold. That is why I include them on my team of advisers.
Disclosure: This advice is general in nature and may not be applicable to your situation. It is important when looking to plan and invest that you seek personal advice that is relevant to you and your unique situation. Not everything covered in this topic may be appropriate for you and your needs. A copy of my personal disclosure statement is available for free on request.
Thanks to Carl Richards for use of the drawings.
- Posted by Isbister
- On April 26, 2017