How to invest for your age: When taking a spin on the markets, young and old must think differently to fly high
Many of us will have been told at some point: ‘Act your age.’ But ‘invest your age’ is a less common command.
Yet your age is one of the most important factors to consider when choosing where to invest – whether in a tax-efficient Individual Savings Account (Isa) or pension.
How many years you have left to invest will help determine where best to put your money.
The younger you are the more investment risk you can afford to take. Analysis by investment website The Share Centre shows that while savers aged 50 or over have most commonly been choosing investments that pay a reliable income, younger investors are making bolder choices.
How many years you have left to invest will help determine where best to put your money
Helal Miah, an analyst at the centre, says: ‘On the one hand, you have a group who are getting close to retirement and are hunting for tried and trusted investments.
‘In contrast, the younger group are investing to grow their money for their future.’
So wherever you are on life’s great carousel, use our guide to help determine which investments are right for you.
After experiencing the security of keeping cash in the bank, first-time investors might be reluctant to take risks with their savings.
But this is the ideal age to ramp up the risk. Racier investment funds have the potential to supercharge your savings.
Rob Pemberton, investment director at London-based financial planner HFM Columbus, says: ‘This early age, from your 20s through to 30s, is the best time to start investing because you have the luxury of time to cushion yourself against any temporary losses you might make.’
Your 20s and 30s is the ideal age to ramp up the risk
This strategy works well for long-term saving, such as pensions, but if you are saving for a house deposit or anything specific in the near future then it is best not to take too much risk.
Experts advise that when investing you should be willing to tie up your money for at least five years.
Choosing racier investments is about getting the balance right. The trick is to pick funds that are well-managed and have already proven they can deliver, even if they do back riskier options. Juliet Schooling Latter is research director at London-based financial scrutineer FundCalibre. She says: ‘Investing in emerging market economies could really pay off on a long-term basis.
‘Asia is likely to be the world’s major growth engine over the next 20 to 30 years.’
She likes Lazard Emerging Markets investment fund, which has exposure to the stock markets of Asia, Latin America, Europe and America. It has turned £10,000 into £13,560 over the past five years.
So-called emerging markets often deliver stronger returns than developed countries, such as the US and the UK, because they have fast-growing economies with younger populations that are becoming increasingly wealthy.
Pemberton likes the Baillie Gifford International fund, which invests across the globe. It has half of its money in big US firms, such as Amazon and Royal Caribbean Cruises, and other investments in Europe and emerging markets, such as South African media company Naspers and German software business SAP. Over the past five years the fund has turned £10,000 into £20,380.
40s and 50s
As you draw closer to retirement age or a time you wish to access your investments, it is wise to start being a bit more careful with your cash.
By this point, hopefully, you should have saved a decent pot of money, so even if it grows at a slower rate the gains can still rack up.
At this age you are probably at the peak earnings period of your career, so the amount you are investing has hopefully risen. While you want your investments to continue growing, you do not want to take any undue risk.
For this age group, Pemberton likes Jupiter UK Special Situations, which picks out-of-favour firms that the manager believes are on the brink of a turnaround.
The fund, which has money in BP, Tesco and Royal Bank of Scotland, has turned £10,000 into £19,320 over the past five years. Schooling Latter likes the Investec UK Alpha fund. It invests in quality companies that have potential to grow, such as Lloyds Bank and British American Tobacco. It has turned £10,000 into £19,600 over the past five years.
60s and over
Historically, many investors stopped investing when they hit their 60s. But with annuity rates so low – putting people off converting a pension into a lifetime income – many of this age group keep a hand in the stock market. They continue to work – often part-time – rather than living off savings and investments.
Once you reach your 60s, your investment focus is likely to be on funds that can pay you an income while steadily growing the money you have left so it lasts for longer.
Schooling Latter likes the M&G Optimal Income fund because it adapts its investments to how the economy is faring, which is an attractive strategy when times are uncertain.
Currently, its largest investments are in German government bonds and the debt of high-quality companies, such as US telecoms firm Verizon. The fund has turned £10,000 into £13,260 over the past five years and pays an annual income of about 3.2 per cent or about £370 a year.
Pemberton likes the Newton Real Return fund, which aims to protect savers’ money. It invests in US and Australian government bonds, which deliver a set income over an agreed period.
Only about 10 per cent of the £10billion fund is invested in shares. Instead it focuses on assets that do better when the economy dips, such as gold. It has turned £10,000 into £12,250 over the past five year and generates an annual income of about 2.4 per cent – about £270 a year.