It has never been so important to learn to invest for yourself
Are you sleep-walking to an impoverished retirement? State provisions for retirement are being withdrawn faster than ever before so it’s time for everybody to invest for their golden years and other key life stages, says Andrew Craig, author of How to Own the World.
Personal finance is ‘an incredible societal blind spot’, says Andrew Craig, and it starts at school with a complete lack of education about the importance of saving and investing for the future. That means many people are heading towards retirement unaware that they have nowhere near enough saved to maintain their standard of living through that critical period of life.
Craig thinks that a ‘carrot and stick’ approach is the best way to help encourage individuals to invest for their future. The carrot, he says, is the compound interest potential of long-term investing, set against the stick, which is the harsh reality that the state can no longer, or is no longer willing, to help individuals in various life stages with financial support for education, healthcare costs, retirement and long term elderly care.
Compounding can help a single lump sum invested at birth develop into a single retirement pot that will adequately support someone from the age of 55. Meanwhile, investing your maximum annual ISA allowance of £20,000 a year into a stocks and shares ISA starting 20 years out with a reasonable rate of return of about 8% could turn you into an ISA millionaire.
Craig says investors should now spread investments across the range of global assets and major geographies to ensure there is a natural hedge against a failure of one aspect of a portfolio. That’s now possible because innovation and competition in financial services and the use of technology means that costs of investing are falling. That also makes investing more accessible to people.
It’s important to make regular contributions across the spread of asset classes. Craig says that through the use of either Exchange Traded Funds (ETFs) or global multi-asset funds, contributions through both good and bad times will build into investments that will fund a person’s needs throughout their life.