Cradle to Grave & Where to Invest Based Upon Age, Risk Profile and Access

With over 30,000 different investment funds in the UK via hundreds, if not thousands of policies, plans, pension schemes and platforms in addition to thousands of different bank accounts and mortgages may leave you totally daunted and not knowing where to start.

To help, we have issued our guide on where to start and what to consider if you are not using a financial adviser or if you plan to seek financial advice once you have a rough idea of what you want to do.

Our Ground Rules on Where to Invest

Emergency Fund is a Must

You should always try and build up some emergency savings in the event of needing to access funds quickly for say a car repair, fridge failing or even losing your job.

How Long to Invest?

We suggest that we should all segregate our money and financial plans into short, medium and long term categories. 

• Short term is money that you are likely to need access to in the next five years.
• Medium term is money that you will need to access in years 6-10.
• Long term is money that you are likely to only need access to in 10 or more years.

For example, if you are in early adulthood, your focus may be on saving in the short and medium term for a holiday, a car, a house deposit, marriage or family plans, with little focus on long term retirement plans although you should always start saving in pensions when you are young but your focus may be weighted 20% of savings towards pensions and 80% to short and medium term needs.   If you are in your 50s it may that you’ve had your family, paid off your mortgage and the car is yours, built up some savings and that retirement age is looming, and perhaps more weighting should be savings in pensions e.g.  30% for ‘leisure’ and 70% for pensions.

Investment Risk and Tolerance to Loss

Investment risk means different things to different people.  This is shaped by our education, investment experiences, lifestyle, careers, and earnings:  Our behaviour is shaped by the aforementioned and is known as ‘behavioural science’.

• Some may consider cash and bank accounts to be low risk because you are not exposed to stock market volatility.  Others may consider cash high risk because you are only a making a small margin % over inflation and the bankers where your cash is held are simply using your money to invest in property (via mortgages) and markets to make even more money.
• Tolerance to loss will also affect our attitude to risk.  If you have enough emergency savings or access to capital in your ‘short term’ money, you may be able to take greater risk and tolerate short term losses for longer term gains whereas some with little savings or smaller pensions, that they will need to rely on make want to take a lower risk.

Taxation and Supermarkets

• We have always likened investing to supermarkets.  You can walk into any leading chain of supermarket and buy a branded tin of baked beans and brown sauce.  You can buy exactly the same goods in most supermarket chains but you may pay a different price and walk out of the store with a different coloured shopping bag/wrapper. 
• This is the same for investing money.   Whether you wish to invest in cash or gilts/bonds or property or developed economy stock markets or emerging markets, you can do so in many ‘shopping bags/wrappers’, be those pensions, ISAs, insurance investment bonds, general investment accounts or unit trusts/investment trusts.  They are just different ‘wrappers’ with different tax rules but all still offer access to in cash, gilts/bonds, property, developed economy stock markets and emerging markets.
• Your taxation position and your need for tax efficiency, tax relief or other planning needs will dictate the type of investment you need.

Cradle to Grave Investing

As a guide, and after having secured your short-term cash and emergency cash savings needs, we have set out below the types of investment that appear more popular and indeed suitable at certain age bands during life:

• Younger Adults – 18-30s = ISAs, Lifetime ISAs (for property deposit or long-term savings) and pensions.
• Established Adults – 30-40s =  Mortgage pay off, ISAs and pensions.
• Pre-retirement – 50-60s = Pensions savings priority then ISAs, insurance investment bonds (for higher earners or for school/university fees planning) and annuity/flexible drawdown retirement options in late 50s (if you can afford to retire early or to access lump sums to pay down mortgages, debt, fund children or other matters).
• Later Life – 70-80s = insurance investment bonds for flexibility on income, assignment and placing in trust for inheritance taxes as well as life insurance for inheritance taxes,  gifting wealth and preparing for later life care with deferred and immediate care annuities.

As can be seen from all the above, there are so many considerations, and we are all different people at different stages in our lives with different needs and requirements.  This will ultimately affect what the right investment pattern and asset mix is for you.  Contact us for professional financial and tax advice.

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