Investment trusts for generations
When it comes to investing, those with years of experience are often the most knowledgeable. As a reader of ours, it could be that your investment journey began a while ago. If you’re in the lucky position to have secured your family’s future, why not pass your hard-won investment wisdom down to the next generation? After all, whenever possible, good financial habits are the first steps to a prosperous future.
The habits we form in early life tend to stick with us, and investing discipline is no exception. Those finishing school and entering the workplace today could be working for 50 years or more as they live longer, healthier lives. The downside, of course, is that this generation might need more funds to spend these years comfortably. And while young people would probably far rather pay for experiences now, there are certain features of long-term investing worth paying attention to.
The earlier you start, the more time you have to meet longer-term financial goals. It’s less stressful to dedicate a smaller proportion of your income to investing early on, than having to play catch-up in later years.
For those opening their ISAs or SIPPs, shares are a common choice. Although equities can fluctuate more in the shorter term, younger investors, with the benefit of time, have a better chance to ride out this volatility. And by investing regularly, even in small amounts, fluctuations can be smoothed due to the effect of pound cost averaging.
Planning for the future
As life progresses, new priorities are bound to come to the fore. These could include saving for a new home, bringing children into the world, or increasing pension contributions. Costs associated with raising a family can include school and university expenses and they need to be considered as part of your financial plan.
If you are considering putting any surplus income aside, conventional bank savings accounts look a safe option. But they often offer interest rates below that of inflation, eroding purchasing power over time. Another option could be investing for the long-term, which may help your money work better for you.
In the years approaching retirement, the main question is whether you have accumulated a big enough pension pot to fund the standard of living you wish to enjoy. Let’s assume you’ve been prudent, and gathered a substantial fund. This stage of the process also needs to be managed carefully. For the majority of retirees, maintaining a reliable and predictable source of income is the most important objective.
Currently, with interest rates set so low, annuities have become a less attractive way to invest your pension pot. Where appropriate, an alternative is to have an investment portfolio to generate income, which also retains the potential for capital growth. If dividends earned from an investment portfolio are significant, they could form a substantial portion of your overall retirement income.
Finally, it’s important to note that everyone’s personal circumstances and financial goals differ. If you’re unsure about the suitability of any investment option, or are worried about making a decision, you should always speak to a professional financial adviser.
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Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.
The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments.