8th June 2018 at 9:30am
Retirement might feel like a long way off. But it’s never too early to start preparing for the future you want. And where you invest your pension money could make a big difference to the lifestyle you’ll have in retirement.
So when it comes to choosing or reviewing your pension investments, like any important decision in life, it’s worth taking the time to think about a few key things:
- How much of a role you want to play in selecting and managing your investments
- How much risk you should take
- How diversified your investments are
- How much you’re paying
DIY or delegate: which one’s right for you?
Delegate – help me do it
If you want some control but aren’t an investment expert, you can choose a ready-made option called a lifestyle profile.
Lifestyle profiles are designed to make it easy for you to save for retirement. They start by investing in a fund which aims to increase the value of your pension over the long term.
And as you get closer to retirement, they gradually and automatically move your investments into carefully chosen funds designed to reflect how you plan to take your money.
If you’d prefer to have someone else handle the day-to-day management of your investments then this could be the way to go.
Some lifestyle profiles let you tailor your investment choice by:
- how much risk you’re comfortable taking
- how you’re planning to take your money in the future – if you know
We’ve developed a range of lifestyle profiles to help you find the one which is best for you.
DIY – let me do it
If you want to be in control and know how you want to invest, then you can choose from a large range of funds covering different asset classes, regions and investment styles.
If you take this approach, you should think about spreading your money across a mix of investments and countries to build a diversified portfolio.
You’ll also need to make sure you have the time to really commit to your investments. You’ll need to review how your investments are doing, research options and, if necessary, move your money around. It’s also up to you to move your money into suitable investments for how you plan to take it in retirement.
If you don’t have the time to do this, you may run the risk of your investments not meeting your goals.
Whichever approach you choose, you should regularly review your investments to make sure they’re on track to meet your goals.
Decide how much risk you’re prepared to take
Think carefully about how much risk you’re comfortable and able to take with your money, and how much you might need to take in order to reach your goals. Generally speaking the further away from retirement you are, the more risk you can afford to take with your investments.
If you go down the DIY route, you’ll be responsible for making sure your chosen funds are taking the right amount of risk for you. Bear in mind that this can change over time.
If you choose to delegate and let the experts help you, think about an option that invests on your behalf within your chosen level of risk. Experts will make sure this level of risk stays the same, so you don’t need to worry.
You can assess your attitude to risk in just a few minutes using our handy online questionnaire developed by Oxford Risk, an independent team of leading psychology academics originating from Oxford University.
Make sure you’re diversified
For most people, it’s a good idea to balance out the amount of risk you take by spreading your money across a mix of investment types (like bonds and equities) and across different countries. That means if things go badly in one particular country or investment type, not all your money will be affected. If you’re going down the delegate route, consider lifestyle profiles which do this for you.
If you decide to choose your own funds, in most cases you’ll need to make sure you’re suitably diversified by researching and picking different types of funds. You’ll also need to regularly monitor your investments and if necessary switch them.
Consider the costs
One of the main reasons to pick your own funds is to try to save money. But, in reality, it’s not always cheaper to build your own portfolio. Fund management companies often have massive buying power. That means they can negotiate lower charges and pass these savings on to you. So it could actually be cheaper overall to go into an investment option, like a lifestyle profile, where experts do it all for you.
But whichever route you decide to go down, make sure you do your research first so you can be sure you’re getting value for money. If you do want to pick your own funds, we’ve tried to make this as easy as possible for you by putting all the information you need about the funds we offer online, including performance, charges and factsheets.
Keep performance in perspective
Obviously how your investments perform plays an important part in the value of your pension pot in the future. But be careful not to base all of your investment decisions on past performance alone because it could easily backfire. Remember that past performance is no guarantee of future results.
When looking at the past performance of any investment it’s important to look at in context of how much risk it takes and its objective. Is it doing what it’s supposed to be doing?
And remember, your pension is invested, so it can go down as well as up in value and could be worth less than was invested. But you’ll usually be saving into your pension for many years and, generally, investments have provided better returns over longer periods than, for example, putting money in a savings account. So try not to worry when you see these ups and downs, and focus on the long term.
If you have a pension with Standard Life, you can register for online servicing in three simple steps. This means you can see how your pension is doing, check where you’re invested and make changes to this if you wish. And if you’re already registered, why not download our app and review your investments on the go.
Please note that the information given in this blog should not be regarded as financial advice.