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Today, with interest rates at all-time lows people who are looking to devise retirement strategies that will enable them to live comfortably when they come to the end of their working lives, or for any other purpose for that matter, will need to consider alternatives to simple savings accounts.
Planning for retirement
When planning for retirement it should be borne in mind that most experts agree that currently the sum required to provide an annual income of $40,000 per year for 30 years is approximately $1m. This is a huge sum, so it is essential that savers identify an investment strategy that offers the highest possible return, but which also limits the risk involved to an acceptable level. This will vary depending on individual circumstances.
Bear in mind that the younger the investor is when a plan is put in place the lower the amount that needs to be saved each month. Compound interest and possible tax breaks add up over a period of 30 or 40 years and will make a significant difference to the final pot.
When setting up a retirement plan be sure to spread investments over a number of products; for example, stocks, government bonds, employer pension plans and property (this might be the family home or properties purchased specifically to generate rental income).
Investing in the stock market
Investing in the stock market is potentially the most profitable way of generating significant returns. However, it is not without its risks, so newcomers to the market are strongly advised to spend some time researching how the system works before taking the plunge and buying stocks with their hard earned cash.
There are two kinds of investors, passive and active:
Passive investing – involves purchasing stocks in a particular sector and then allowing the fund to track the market. Stocks may be purchased through a broker, with the individual investor deciding whether to sell or hold on to them. This is an option often chosen by retirees who have the time and inclination to research and monitor the market on a regular basis.
Active investing – involves appointing a fund management company to trade stocks on a daily or even hourly basis on behalf of the investor. If, for example, a particular sector of the market begins to make gains the investment can immediately be moved to take advantage of the opportunity. There is some debate about the overall benefits to be derived from this option, though it is widely accepted that in sectors such as healthcare, small companies, emerging markets and technology, there are distinct benefits to be gained by taking this option.
Where to invest
There are a huge number of investment opportunities available and some of the most popular are listed below. Contact a stockbroker or investment specialist for information on how to purchase stocks in the various sectors.
Energy and Utilities sectors – in addition to traditional sources of power, such as petroleum, coal and natural gas; this sector also includes water suppliers and ‘green’ forms of energy; for example, wind, solar and hydroelectric. This sector can be relied on to produce consistently good returns on investment. No matter how difficult economic times may be, there will always be a demand for energy and utilities.
Technology sector – just about everyone relies on technology, whether it takes the form of smartphones, tablets, TVs, laptops, motor vehicles or aircraft. No industry can hope to remain competitive if it fails to take advantage of the latest advances in time and money-saving tech. What’s more, technology is advancing at a faster pace than ever and will continue to do so, come recession or boom. As a result, this is one of the most profitable of all sectors to invest in. Precisely which companies to select depends on how risk adverse the individual is; successful start-ups can make their stockholders wealthy almost overnight, but they might also fall by the wayside just as quickly. Established companies, such as Apple, Cisco and Microsoft, still offer reasonable returns and are more likely to be around in 10 or 20 years’ time.
Industrials and Materials sector – these are sectors that impact everyone; it includes road, bridge, house, office and industrial construction; along with all aspects of manufacturing and engineering. Except in the severest of economic downturns this grouping, which features some of the biggest companies around, is usually a safe bet that promises reliable returns and consistent dividends.
Healthcare Sector – unfortunately, at some point in everyone’s life, there will be occasions when some form of health care is required, whether to treat a minor injury or undertake major surgery. Also, given the fact that the US has an ageing population, the demand for long-term care is increasing and will continue to do so. Companies manufacturing medical equipment, along with those that provide front line services; clinics, hospitals and care homes, all offer great opportunities for investors, regardless of the state of the country’s economy.
When putting any long-term investment plan together it is always a good idea to discuss the various options with a financial expert. The specific requirements of each individual are different, which means there is no single, fit all, solution.
