Setting out 2021 goals that could prove rewarding
Should auld acquaintance be forgot, and never brought to mind? Well, in the case of 2020, many might be eager to forget their acquaintance with the year, which will long be synonymous with a devastating pandemic and the economic turmoil that ensued.
Volatile times reinforce both the need for, and benefits of, sound planning. In the pandemic, so many people have had their contingency plans tested. So, as we set out our goals for the year ahead and beyond, we should take a moment to consider the role financial planning will play in supporting our future.
How to keep the golden years golden
Although the best-laid schemes of mice and men gang aft agley, if we start early then we have a better chance of our plan at least being flexible enough to meet our goals. Nowhere is this adage truer than in retirement planning, where a sensible approach adopted early in one’s career can help you get through tough times. As we bed into winter, it’s perhaps a good time to reassess your retirement plan and goals. Are you on track to have a big enough pension pot at retirement to supply the income you need to live off in your golden years?
As we get older, our attitude to risk often changes. In our younger years, we are better positioned to take a bit of risk and, with a diversified portfolio of equities, that risk has historically been rewarded with higher returns. That’s effectively how a pension pot is built up. As we approach retirement, the rule has usually been to balance your portfolio with a mix of bonds and equities. The dichotomy that those with pensions face is that government bonds, traditionally seen as a risk-free investment, have such a low return that they may no longer provide a sufficient income. Many have moved up the risk curve to find the better returns and attractive dividend yields – though returns are not guaranteed, of course.
Investing in your children’s future
This year has served as a timely reminder of the importance of education. What steps can parents (or grandparents) take to meet the associated long-term costs? Many already know that investing money to celebrate a child’s birth can mature and be used to generate income to help, even partially, cover educational expenses. As little as £25 per month invested can be enough to provide a useful contribution to school or university costs.
Planning for home ownership
For many, purchasing a property is not only a key milestone on the journey to independence, but has tended to be a good financial move. Getting on the property ladder is increasingly challenging for first-time buyers, and around half of them are turning to the ‘Bank of Mum and Dad’ for help. This option might not be available, however, which can mean having to squeeze spending more and more to make housing plans a reality. Starting to set aside some funds early, allowing them to grow over time, can help with this struggle.
Achieving future goals: a matter of planning
In an uncertain and volatile world, the seeds you plant could reap literal dividends in the future. If that fact wasn’t clear in early 2020, it certainly is now. As we mark the beginning of 2021, setting out some specific goals for your financial future might just be the best thing to come out of the current situation.
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.
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. This may mean you get back nothing at all.