Men narrow the gap on women when it comes to life expectancy
Thanks to healthier lifestyles and advances in medicine, people are living longer lives, but many individuals may not feel financially prepared for their retirement. When it comes to retirement and setting your investment goals or strategy for your financial planning, there are two main options.
If you’re looking to build up the value of your investments over time, you’re investing for growth. Alternatively, if you’re aiming to get a regular income from your investments, then you’re investing for income.
Some investors think of cash as a safe haven in volatile times, or even as a source of income. But the ongoing era of ultra-low interest rates has depressed the return available on cash to near zero, leaving cash savings vulnerable to erosion by inflation over time. With interest rates expected to remain low, investors need to be sure that an allocation to cash does not undermine their long-term investment objectives. Cash left on the sidelines earns very little over the long run.
Eighth wonder of the world
Compound interest has been called the ‘eighth wonder of the world’. Its power is so great that even missing out on a few years of saving and growth can make an enormous difference to your eventual returns.
You can make even better use of the magic of compounding if you reinvest the income from your investments to grow the starting value even more each year. Over the long term, the difference between reinvesting the income from your investments and not doing so can be enormous, so can the impact on your financial plan.
While many investors know what they should probably do to win the investment race i.e. set a long-term strategic plan, use high quality, low-cost funds and rebalance, too many appear to be tempted into responding to market noise and short-termism, resulting in too much investment activity. Such an approach – grounded in behavioural biases – risks losing the investment race. Being an investment tortoise is better than being an investment hare. Focusing on the long-term likelihood of success is key.
The lesson is to not panic
The last ten years have been a volatile and tumultuous ride for investors, with natural disasters, geopolitical conflicts and a major financial crisis. It’s important to have a plan for when the going gets tough instead of reacting emotionally. The lesson is to not panic: more often than not, a stock market correction is an opportunity, not a reason to sell. Market timing can be a dangerous habit. Corrections are hard to time, and strong returns often follow the worst returns. But often investors think they can outsmart the market – or they let emotions like fear push them into investment decisions they later regret.
While markets can always have a bad day, week, month or even year, history suggests investors are much less likely to suffer losses over longer periods. Investors need to keep a long-term perspective. A diversified portfolio also provides a much smoother ride for investors than investing in just equities.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
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