Page 30 - DIY Investor Magazine | Issue 33
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Having an investment portfolio in addition to your pension could aid your preparation for retirement – whether you’re planning to stop work completely or reduce your hours, writes Christian Leeming.
As such when thinking about your investment portfolio, it is important to consider these pots alongside any ISA you may open. Taking a holistic view and holding different kinds of assets between a pension and an ISA can be a clever way to balance risk.
As a rule of thumb, as you get older, your investment portfolio should shift gradually away from a focus on ‘growth’ investments towards ‘income’ investments.
Of course, this is dependent on your own circumstances, and if you’re 59 years old and intend to keep working for another decade, then some growth investments will still be fine for you. While growth and income is typically differentiated between buying equities – company shares that will grow in value – and bonds – company debt that will produce an income – it is a little more varied than that.
Many equity-invested funds are actually tasked with primarily providing an income, while some bond funds are designed to create growth in asset value.
Investment trusts, a type of fund that is structured differently from normal investment funds, often are focused on income too; understand the purpose of the funds you are investing in, growth or income.
Whether you do that through equities or bonds, or most likely a blend of both, will come down to your appetite for risk and time you have to recover value if markets fall.
As you get closer to retirement – or at least wanting to rely more on your investments for an income – your portfolio balance should shift to investments that offer income over capital growth. Income-focused funds typically prioritise income and capital preservation, but some offer modest capital growth too.
Even when you are in your mid to late 50s, with average life expectancy in the UK at 81 years old, you should be thinking about the next 20 plus years; you will probably be looking to generate an income from your investments for many years to come.
  Your workplace pension will already be invested, and in many cases you won’t have a choice, or a very limited one, so it makes sense to what your pension is invested in and to think about something different for your ISA.
If you have several workplace pension pots, you should consider consolidating them into one manageable Self Invested Personal Pension or ‘SIPP’. More about pensions >
Investing in your 40s and 50s can be a bit more involved than when you first start; not only are you closer to retirement, with less time to see your investments grow, but someone aged 40 will also have a very different set of needs to someone aged 55.
However, you’ll also hopefully be in your prime earning years which means you’re more able to set aside more of your income for your future. Here are four things to consider when investing in your 40s or 50s.
The first thing to consider is what your priorities are for the money you intend to invest. If you have a timeline in mind that is longer than five years, you are probably going to be more focused on growing the size of your pot.
If you are closer to 55, you may be starting to think about winding down a bit on your career and enjoying the fruits of your labour.This means you should probably think more about generating an income from your portfolio, but with some capital growth too.
DIY Investor Magazine · Apr 2022 30

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