Since late March, FTSE 100 shares have been in ‘market rally’ mode. As the initial shock of the coronavirus-induced market crash has subsided, a large number of investors have again been buying in to stocks. On 23 March, the index dipped below 5,000. On Thursday it was hovering around 6,100. That was a healthy gain of over 22% at one point, although it did close below 6,000 again.
But it was still well up on the March low. As the City debates whether this V-shaped recovery can be trusted, today I’d like to discuss why these short-term choppy market moves should not concern retail investors who may be investing for the long run and for retirement.
Thinking about retirement amid the volatility
It is hard to emotionally distance yourself from alarming headlines about Covid-19, as well as the stomach-churning market volatility in the FTSE. We all have a lot to worry about right now.
So you may find that when trying to balance life priorities, saving for retirement can easily get pushed back.
However, deep down many of us know that ‘this too shall pass’ and life will return to ‘normal’ in some weeks.
The full basic State Pension stands at £175.20 per week. Do you believe you can live on that amount for the rest of your life after retirement?
Start planning sooner, not later
It is important to form a realistic plan for paying for retirement. To start, I’d encourage contributing to your workplace pension scheme.
Every UK resident should also learn more about the different types of ISA available to them. My emphasis would be on Stocks and Shares ISAs. The deadline for individuals to contribute to the current tax year’s ISA is 5 April 2021. So there is plenty of time to do due diligence on shares.
My Motley Fool colleagues regularly cover FTSE 100 and FTSE 250 shares and funds that you could consider adding to a diversified retirement portfolio. They point out that despite various downturns and even crashes, over the long run, stocks in the UK return about 6% to 8% annually, on average.
Are you are worried about a potential economic contraction? If yes, then you may want to research firms that have solid earnings that can be relied upon through a recession.
There are several companies I’d consider buying, especially if there is any further weakness in their share prices in the coming weeks. In the FTSE 100, they include AstraZeneca, British American Tobacco, Ocado, Pennon Group, Smith & Nephew and Unilever.
In the FTSE 250, I like Babcock International Group, Cranswick, Dechra Pharmaceuticals, and Softcat as potential long-term investments.
Making the right decisions in stock market investing is not necessarily about constantly picking winning shares. Rather it is about having a long-term strategy.
Time is on your side
Here’s an example of the power of time on your investments: let’s assume you’re now 35 with £20,000 in savings and that you plan to retire at 65.
Despite the market crash, you now decide to invest that £20,000 in a fund and make an additional £3,000 in contributions annually at the start of the year. You’ve 30 years to invest. The annual return is 6%, compounded once a year. At the end of 30 years, the total amount saved becomes £366,275.
Saving £3,000 a year means putting aside £250 a month or about £8 a day. Is it time to skip that next impulse purchase?
