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Building your Financial Future: Saving for Retirement in Your 20s

Building your Financial Future: Saving for Retirement in Your 20s and 30s

Saving for retirement may not be the first thing on your mind when you’re in your 20s and 30s, but it should be. The key to achieving long-term financial security and steadily growing your wealth lies in regular investing and thoughtful planning. In this blog, we’ll explore the strategies and considerations to help you set the foundation for a comfortable retirement.

In your 20s and 30s, your primary goal is long-term capital growth. Whether you’re saving for a home or planning for retirement, several investment products can help you achieve your objectives. These include stocks and shares ISAs, Lifetime ISAs (LISA), and self-invested personal pensions (SIPP).

 

To ensure that your investments align with your long-term goals, it can be beneficial to seek guidance from experts in the field. You may find it helpful to work with a financial advisor who can provide personalised advice tailored to your unique financial situation and goals. A financial advisor can help you create a customised investment strategy that takes into account your risk tolerance, investment horizon, and desired retirement lifestyle.

With many years ahead of you before retirement, opting for less risky assets like bonds or precious metals might be overly cautious. Embrace the opportunity for growth by investing in shares of companies, also known as equities. When selecting companies to invest in, consider their industry, growth prospects, financial strength, and competitive landscape. Emerging industries often offer the best growth potential.

Picking winning companies can be challenging. Alternatively, you can invest through actively managed funds, where expert fund managers make investment decisions on your behalf, Passive investment funds, often referred to as index funds and Exchange Traded Funds (ETFs), track the performance of specific indices, such as the FTSE 100 or S&P 500. They aim to match the index’s performance and typically have lower fees. Active funds may outperform indices over the short to mid-term but come with higher fees, while passive funds offer cost-efficiency, Since these funds closely replicate their underlying benchmarks, you can expect a return that is close to that of your fund’s underlying benchmark. Consider a mix of both for your portfolio.

Don’t limit your investments to your local market. Mature economies may have limited growth prospects compared to emerging markets in regions like Asia. Consider diversifying globally investing in sectors with growth potential. Balance your portfolio by holding funds in various sectors. If you’re unsure about specific regions or themes, opt for a globally-focused fund to diversify across the world.

You don’t need a large lump sum to begin investing. With as little as £10-25 a month, you can start building your portfolio. Regular investing helps you accumulate assets over time and offers protection during market downturns. When markets are volatile, you can benefit from “pound-cost averaging” by buying more units at lower prices. Don’t panic when markets dip; they tend to recover over time. Your long-term horizon means these downturns are temporary, and investing when prices are lower can maximise your growth potential.

Saving for retirement in your 20s and 30s is a smart financial move that sets the stage for a secure future. By embracing long-term growth strategies, diversifying your investments, and committing to regular contributions, you can build a solid foundation for retirement and other financial goals. Remember, the key to financial success is to start early and stay consistent on your journey towards financial security.

Written by: James Croker

Date: 28th September 2023

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Cash Deposit Rates

Cash Deposit Rates

 

With a Bank of England base rate of 5.25% now is an excellent time to review your cash savings and ensure you are maximising interest on deposits.

Earlier this month we experienced our 5th rate hike of the year, taking us to a base rate we’ve not seen since 2008. The base rate rises are designed to manage inflation, impacting how banks price their mortgage products and savings rates. Analysts suggest higher interest rates are here for the medium term, yet we’ve seen more falls than rises in interest offered since the most recent rate rise. Given this, we suggest ensuring your money is working efficiently for you on the banking level and encourage you shop around for the best easy access, fixed rate or notice savings accounts.

 

For those with the scope for regular monthly contributions to a savings account with no capital risk, many banks and building societies are offering preferable rates for a one year fixed. Skipton Building Society will pay 7.5% per annum for a one year fixed with maximum monthly contributions of £250. This account is only available to members of the building society from before May 2023. First Direct similarly offer 7% per annum for a maximum of £300 a month, fixed for one year. This may be an interesting option for those currently overpaying to relatively cheap mortgages in today’s terms, shifting the focus towards building a pot for repayment against the fixed period ending.

If you’re looking to save for a fixed period with a lump sum instead of monthly cash, Oaknorth Bank offer 6.04% on a one year fix, Charter Savings Bank 6.02% or Atom Bank 6%. Over two years Atom Bank offer 6.05%, Aldermore and Close Brothers Savings 6%. Finally for cautious deposit holders looking longer term, five year rates peak at 5.81% at date of writing with Cynergy Bank, or 5.8% with RCI.

Alternatively if easy access is required as part of your planning we have rates of 4.80% with Oxbury bank, 4.65% in Secure Trust and 4.63% in Shawbrook. These rates are subject to change, but offer complete easy access. Should you prefer branch based offers Yorkshire Building Society offer 4.35%. None of the larger high street banks come up as strong alternatives (not in the top 25).

Savers must bear in mind that higher interest from deposits results in higher risk of income tax on interest. Basic rate tax payers have a personal savings allowance of £1,000, versus higher rate at £500 and additional rate at £0. Premium bonds or cash ISAs are an alternative way to save when deposit savings is required, and you’ve used the savings allowance elsewhere. At present we have easy access cash ISA rates of 4.33% with Shawbrook, or one year fixed at Virgin Money for 5.76%.

It is important to highlight that given the Financial Services Compensation Scheme protection limit of £85,000, you should not breach this limit with one bank or building society. Spreading deposits across multiple banks is advisable, but not always logistically manageable. Therefore for those with a large sum designated for a specific purpose (house purchase, for example), National Savings and Investments (NS&I) offer the solution. Interest is lower than the rates introduced above, but all funds up to £2,000,000 are 100% protected. NS&I offer a monthly income on their Income Bonds of 3.59% annualised or 3.65% on their saver account. Premium Bonds offer a tax free growth option with equivalent interest of 4.65% paid as prizes.

All interest rates are accurate as of date of writing: 10th August 2023 and are subject to change or product removal.

Written by: Catriona McCarron

Date: 24th August 2023

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