The average retirement age in the UK is 64.5 years and it’s set to rise. And while financial freedom, early retirement and leaving behind the nine-to-five grind are the dreams of many, very few achieve this. However, more people like me are waking up to the power of creating passive income streams. And as a young investor, I have been actively researching investment routes that help create a passive income portfolio to slowly build wealth.

With an aim of retiring by my late 50s, I think I have created a template that could give me that extra decade of retirement time to enjoy. And all it takes is a few hours a month of planning and investing. 

#1 Reinvesting dividends

I have set aside £10,000 to kickstart my passive income portfolio. And with this, I am looking at DRIP (Dividend Reinvestment Plan) as the primary way to keep my passive income portfolio growing in line with expected inflation. 

The DRIP strategy uses the power of compounding. This simple tool is used by investors like Warren Buffett, whose company made $3.8bn in dividends alone in 2018. For the next 20 years, I will reinvest every dividend payout back into my initial investment. And this could increase my payout figures by over two times by the time I am 50. 

Let us assume I pick a stock from the dividend-rich FTSE 100. Companies like M&G and Rio Tinto are dividend aristocrats that offer 8%+ yields and have raised payouts steadily over decades. And I think they could, if current projections are maintained, offer a steady 5% annual yield on average.

Assuming 0% share price and dividend growth over the 20-year period, my investment would be worth £20,000 without DRIP. A £10,000 income from dividends sounds awesome, but it could be so much better.

With DRIP, the same investment would be worth £26,532.98. And the most impressive fact is that my dividend payout after the 20 years would be £1,263.48 received every year. This is over two times the £500 I would receive every year without DRIP. 

#2 Systematic investments

I am also looking to invest an extra £500 a month into this pot, amounting to £6,000 a year, for 20 years. This would take my total investment to £130,000.

And with DRIP investing and systematic payments every year, the final amount would become a whopping £224,928.70 with a payout of £10,425.18 that I will receive every year. I think I could easily receive £1,000 a month with some share price or dividend growth over 20 years. Not a shabby foundation for a passive income play, right?

However, it is important to note that dividend payouts will fluctuate. Dividends can be scrapped when a company (or the economy) struggles. I could actually lose money. Just picking companies with cash reserves or large market shares will not be enough. Being diligent and monitoring my investments periodically is crucial.

Also, putting all my eggs in one basket is unwise. I will continue investing in growth stocks from sectors I see as fairly future-proof to diversify. But I think these two guidelines are a great starting point for me to target a £1,000-a-month passive income stream.

The post Here’s how a £500 passive income plan could help me retire early appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

These days it can be difficult to find the money to invest for retirement. As inflation continues to squeeze budgets, it can be tempting to cut back on long-term savings plans. Short-term needs can seem far more compelling.

I get it, we’ve all been there at times, and for me it was especially true when I’d only just started working.

At the same time though, I also had plans to quit the rat race early to be able to travel more. With the average retirement age in the UK being just under 65 years old, I knew I’d have to start investing early to beat that.

Having now retired early in my 40s, these are the two top tips on investing for retirement that really helped make it happen.

Reinvesting dividends for a better retirement

It can be eye-opening to see the impact of reinvesting dividends on market returns. Especially as time goes on and those reinvested dividends start to earn their own returns — the so-called snowball compounding effect.

For example, the FTSE 100 average return is usually quoted as around 7.9%. What people often don’t mention is that includes reinvesting dividends. Without doing that, the average rate drops to around 5.8%.

The difference may sound small, but if I had invested a lump sum of £10,000 back in 1984, the impact today would look like this:

After 10 years, the gap is small at just under £4k. But by the start of 2022, it’s a far more substantial amount at around £95k extra. That’s pretty much twice the final pot size between the two different methods of investing!

That difference comes from the FTSE 100 average dividend level of around 3.5% over the same time period. So imagine how that gap widens when I target dividend shares above that rate.

That could be Rio Tinto, M&G and Persimmon — if invested equally between them, I’d get an average blended dividend rate of around 11.5%. That’s only going to widen that gap with this reinvestment approach.

That’s great — but where I saved my cash mattered too. Time for tip two!

Planning matters when investing for retirement

When it comes to investing for retirement, planning ahead matters.

I’ve always invested in pension schemes first for the tax rebates they offered. But it’s my ISA investments that offer me far more flexibility.

By using a Stocks and Shares ISA, I can invest up to £20k each year free of any capital gains. And now, I’m also able to withdraw a regular tax-free income to fund my early retirement.

If I’d bought those three shares mentioned above, then after just 10 years of maxing out my ISA I’d have about £350k in total, ignoring any capital growth. That would give me a healthy annual tax-free income of almost £40k!

Picking the right investments for retirement

I honestly couldn’t have retired early without using these two tips for investing for retirement. But it’s worth saying that (unsurprisingly) it’s as important to pick the right underlying investments.

Dividend yields are prone to change and inflation needs accounting for — especially these days. But taking the time to research what’s best for my personal risk/reward appetite really paid off.

It’s not always been easy, but these two tips were definitely a big part of helping me achieve my dream retirement.

The post 2 top ways to invest for retirement appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Michelle Freeman owns shares in Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Start retirement saving…Now

A lot of people have put off the idea of investing in the belief they need a lot of money to get started. This simply isn’t true. Most brokers only require you to put as little as £25 a month to work.

It really is amazing what a sum like this can grow to over time. Invest £25 every month for the next 30 years (very roughly the time 40-somethings have before taking retirement) and you’ll end up with just under £50,000, based on achieving an annual return of 10%.

Of course, the return could be lower or higher than this — we can’t say for sure. However, we do know that shares beat all other assets when it comes to growing your wealth over the long term.

Cut costs where you can and simply get started on your retirement pot journey.

Avoid the pre-retirement tax grab

If you want to boost your chances of being rich by retirement time, it makes sense to hang on to as much profit as you can along the way. One way of doing this is to make sure you buy shares within a Stocks and Shares ISA, or Self-Invested Personal Pension (SIPP).

While there are quite a few differences between these accounts, both allow you to shield your gains from the taxman. Nor will you pay any tax on dividends that you may receive from the shares you own. 

This really matters over the long term, because it means more of your money will be allowed to compound. 

Go small

Having opened an ISA and committed to putting some money aside every month, the next step is deciding what to buy. You could take a very general approach and buy a ‘target date’ fund. As it sounds, this invests your money based on when you expect to retire.

Importantly, it adjusts which assets your money is invested in as time ticks by. This means very little maintenance will be required over the 30 years or so that you’ll be invested for.

For those who want to boost their returns, however, you can’t beat buying quality stocks at great prices. Even initially-expensive-looking shares can turn out to be solid investments if a company can keep growing.

Those in their 40s who really want to make big money by retirement age should also consider holding small company stocks, either individually, or within a fund. These firms are more likely to grow faster than larger, more established companies, albeit at greater risk.

Buy the trend

Another way of boosting your savings is to buy into companies that have exposure to major themes such as, say, clean energy, video gaming and biotechnology. These industries have exceptionally bright futures. The earlier you can catch the investment wave, the greater your chance of retiring rich. 

Tapping into these high growth stories doesn’t need to be complicated either. Investment managers, such Blackrock (iShares) and VanEck, offer a huge variety of index funds tracking major investment themes. Importantly, the fees charged for holding these funds are cheap, allowing you to retain more of your profits. 

The post No savings at 40? Here’s how to boost your chances of a richer retirement appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Yet surprisingly, the majority of Britons completely ignore this ISA. Indeed, according to statistics from HMRC, in the 2018/2019 financial year, only 2.4m people across the UK contributed to a Stocks and Shares ISA. That equates to about 4% of the population.

If you’re saving for retirement and are yet to open a Stocks and Shares ISA, my advice is to consider opening one this financial year. This ISA is a very powerful savings vehicle. It could make a big difference to your wealth over time.

Join the ‘ISA Millionaire’ club

From a retirement saving perspective, the Stocks and Shares ISA has several key advantages.

One of its main advantages is that it enables you to invest in a broad range of growth investments including UK shares, international shares, funds, investment trusts, and exchange-traded funds (ETFs). Over time, these kinds of investments tend to grow your savings at a very healthy rate.

Take the popular Fundsmith Equity fund, for example. This fund, which is available through most Stocks and Shares ISAs, has returned more than 140% over the last five years. That means a £10,000 investment in Fundsmith five years ago would now be worth about £24,000.

Many top UK shares have done even better. Over the last five years, shares in retailer JD Sports Fashion have risen about 290%, turning £2,000 into nearly £8,000. Meanwhile, shares in online supermarket Ocado have risen about 630%, turning a £2,000 investment into about £14,500.

Of course, I’m cherry-picking examples here. Not all Stocks and Shares ISA investments have performed this well. But you get the idea. Whereas you’re only likely to pick up a return of about 1% per year from a savings account or a Cash ISA, it’s possible to achieve tax-free returns of 10% per year, or higher, in the long run, from a Stocks and Shares ISA. The key is to simply put together a balanced portfolio that contains a mix of investments. 

Contribute £500 per month and earn 10% per year on your money and you’re looking at joining the exclusive ‘ISA Millionaire’ club in around 30 years.

Retire early if you want

Aside from the phenomenal range of investment choices, another big advantage of the Stocks and Shares ISA is its flexibility. With a pension, you have to wait until age 55 to access your money. Yet with a Stocks and Shares ISA, you can access your money at any age. Want to retire early? No problem!

It’s also worth pointing out that with a pension, you can only access 25% of your pension pot tax-free at age 55. Yet with a Stocks and Shares ISA, you can access all of your money tax-free.

Overall, the Stocks and Shares ISA is an amazing retirement savings vehicle. With its diverse range of investment options and tax benefits, it can help set you up for a comfortable retirement. I see saving into one, alongside a pension, as an easy retirement saving move.

The post Retirement saving: only 4% of Britons made this ‘no-brainer’ move last year appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon has a position in Fundsmith Equity. The Motley Fool UK owns no shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today I’m going to talk about the one thing all new investors must learn and all experienced investors must remember. The fact that we’ve just experienced the worst quarter for stock markets since 1987 makes it even more relevant.

The most important thing

Forget all the fancy money-making strategies you’ve heard. To really increase your wealth, it’s more important to understand the concept of ‘compound growth’.

We experience compounding in everyday life, usually without even recognising it.

Suppose you want to get fit and decide to dedicate 10 minutes a day to exercising. Initially, progress is slow. Over time, however, workouts become easier and your body can do more.

The reason for this is simple: every bout of exercise builds on those previously completed. 

Compounding can work against us too. Allowing ourselves an extra portion of something calorific at dinner might not feel wrong at the time. The result of doing so many times over many evenings, however, eventually shows on our waistline. 

The little things we regularly do add up.

So, it can make me rich?

Yes. Compounding is the not-so-secret sauce that can also make you wealthy. 

Imagine investing £20 in the stock market every month (or £240 per year) for the next 30 years. Over this period, markets rise in value and you re-invest any dividends you receive.

Although the actual rate of return will vary from year to year, let’s say your portfolio returns 10% per annum. So, after one year, your money increases in value by 10%. In the second year, the money you had after the first year increases by 10% and so on. 

After 30 years, you’d have nearly £40,000. It’s grown by so much because you’ve earned interest on interest every year. Your money has compounded. 

Remember, this is the hypothetical result of investing just £20 per month. Put away £50 a month and you’ll have almost £99,000 based on my figures. £100 a month will give you over £197,000. It’s not magic, it’s simple maths. 

The only caveat is that there’s no guarantee the stock market will return that 10% average per year. It could be lower or higher, depending on what you choose to invest in and how those investments perform. 

Dedication required

Compounding can make you rich, but it still requires two things from you: commitment and patience.

Just as practicing the violin once every year won’t lead to any meaningful gains in terms of ability, saving ‘when you feel like it’ is unlikely to substantially increase your wealth.

This is why setting up a direct debit to take even a small amount of money from your bank account to your ISA every month without fail is crucial. By automating your savings, you take out the need to be motivated to save.

Second, learning to delay gratification is vital. Warren Buffett’s wealth has increased massively in later life because he recognised that results aren’t immediate. He continued to invest, through good times and bad. 

Which brings me back to the start. Having the courage to invest through market wobbles is desirable since it allows you to buy more when prices are depressed. The more stock you accumulate at lower prices, the greater the eventual upside will be.

Forget the market crash. Remember the power of compound growth.

The post Forget the stock market crash. Knowing this could help you retire rich appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Need to get your retirement savings into shape? Here’s a look at four smart financial moves that could help you.

Consolidate your pensions

One of the smartest things you can do if you’re serious about retirement planning is consolidate all your different pension accounts. When you have multiple pensions set up (as a lot of people do because they’ve had multiple employers over the years) it’s hard to keep track of your overall pension balance and how your money is invested. This makes the process of planning for retirement more challenging.

By consolidating all your pensions into one account, you’ll find it much easier to keep track of your pension savings. This, in turn, will make it easier to determine whether you’re on track to achieve your financial goals.

I’ll point out that there are some situations in which a pension consolidation isn’t the best move. For example, if you’re a member of a final salary pension scheme, you may be better off leaving your account as it is. However, in general, bringing together your old pension accounts is a great idea.

Determine your overall asset allocation

Another smart move to make is to determine your overall asset allocation across all your different investment accounts (pensions, ISAs, savings accounts). When you have multiple accounts set up, it can be challenging to work out exactly how much exposure you have to different asset classes. This is a problem, because your money may not be invested optimally.

What I like to do at the start of every year is to create a spreadsheet that lists all my assets across my different accounts. Then, I group the assets into different asset classes (UK equities, global equities, property, cash) so I can see exactly how my money is invested overall. By doing this, I can determine whether I need to increase or decrease my exposure to certain asset classes.

Review your tax-efficiency

Next, make sure you’re taking advantage of all the tax-efficient investment options that are on offer.

You probably know that you can put £20,000 into a Stocks and Shares ISA per year and invest this tax-free, but did you know that the Lifetime ISA (which is only open to those aged 18-40) comes with bonuses of up to £1,000 per year?

And did you know that if you contribute into your pension, the government will add in some extra money for you? The more tax-efficient your strategy, the better.

Review your investments

Finally, the start of the year is always a good time to monitor your existing investments. Do all your holdings still suit your risk tolerance? Is it worth selling any small holdings to clean up your portfolio? Have your funds performed as well as you expected? And if not, are there better options? Is your portfolio diversified properly? Are there any stocks that are worth buying at the present time? These are all good questions to ask when reviewing your investments at the start of a new year.

The post Retirement saving: four smart financial moves I’d make to kick off 2020 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The problem is, however, that many people who are approaching retirement age have nowhere near that level of pension savings. For example, according to a recent study by insurance group SunLife, the average pension pot of those aged 50-59 in the UK is just £146,666.

Clearly, there’s a huge pension savings gap here. With the average pension pot of those in their 50s standing at less than £150k, many people are on track to hit retirement age with an insufficient level of savings to retire comfortably. This ultimately means that retirement may not be what they were expecting it to be.

So, what can you do if you’re in this position and need to make up a £130,000+ shortfall?

Up your savings

To my mind, the first thing to do if you’re approaching retirement and your pension savings are a little on the low side is aim to boost your monthly savings. Try to cut down on unnecessary expenses so that you can save more money and always pay yourself first so that saving is a priority.

Pocket government bonuses

Next, I’d suggest taking advantage of ‘tax relief’. This is essentially bonus money that the government hands out to those who are willing to save for retirement.

All you need to do to get your hands on tax relief bonuses is save into a pension account. This could be a workplace pension, a personal pension, or a Self-Invested Personal Pension (SIPP).

Basic-rate taxpayers are entitled to 20% tax relief meaning that if you put £400 into a pension, the government will add in another £100 for you. Put in £800, and this will be topped up to £1,000. This could really help you boost your pension savings.

Grow your money over time

Finally, get your money working for you. The best way to do this, assuming you have a long-term investment horizon (more than five years) is to invest in growth assets such as shares and funds. These are riskier than cash savings, but in the long run, they tend to produce much higher returns.

For example, according to this year’s Barclays Equity Gilt Study, UK stocks have delivered a return of around 4.9% per year above inflation (so around 7%-8% overall) since 1899, versus just 1.3% for bonds and 0.7% for cash. Can you afford to ignore that kind of return?

Doing a quick ‘back-of-the-envelope’ calculation, I calculate that if you saved £5,000 every year from the age of 50, picked up 20% tax relief from the government, and generated a return of 7.5% on your money every year through the stock market, by 65, you’d have an extra £163,000 to your name. Pension savings gap sorted.

If you’re looking to learn more about how to invest your money in the lead up to retirement, you’ve come to the right place.

The post Retirement saving: those aged 50-59 require an extra £130k+ to retire comfortably appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With that in mind, here’s a simple three-step plan that could help you salvage your retirement if you’re 50 with no pension.

Open your own pension account 

If you have no pension set up at 50, it makes sense to set one up as soon as possible. The reason it’s a good idea to save into a pension for retirement, as opposed to a savings account, is that pensions come with tax relief. This means that your contributions are topped up by the government. Basic-rate taxpayers receive 20% tax relief (higher rate taxpayers can claim back more) meaning that an £800 contribution is topped up to £1,000.

There are two main ways to open a pension. The first way is to open a personal pension account. These are offered by a number of financial services companies such as Aviva and Fidelity. The second way is to open a Self-Invested Personal Pension (SIPP) account. This is a government-approved personal pension scheme that enables you to make your own investment decisions. These are also offered by a range of companies such as Hargreaves Lansdown and AJ Bell.

Get saving

Once your pension is open, start making regular contributions. The more you save into your pension, the more tax relief you’ll receive and the quicker you’ll build up your retirement pot. You can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a pension account and qualify for tax relief.

Start investing

Finally, the most important step is to invest the money within your pension so that it grows over time.

The best way to do this is to put your money to work in the stock market through either investment funds or individual shares. Over the long run, the stock market tends to generate returns of around 7%-10% per year, meaning that it can boost your wealth significantly over time.

For example, let’s say you saved £500 per month from the age of 50 into a pension, picked up 20% tax relief (taking your annual savings to £7,500) and then generated a return of 8% per year through the stock market on your money. According to my calculations, by 67, your pension would be worth over £250,000. That’s certainly not a bad result from savings of just £500 per month, starting at 50. 

Of course, you could potentially save much more than this if your income permits. Raise your savings to £1,000 per month, and you’re looking at pension savings of over £500k by the age of 67.

Ultimately, the key, if you have no pension at 50, is to act sooner rather than later, and get your money working for you as soon as possible.

The post No pension at 50? This 3-step plan could save your retirement appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Aviva and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That said, to be successful in the stock market, it is crucial to get the basics right. All too often, investors make silly mistakes that cost them money and put their retirement at risk. 

With that in mind, here’s a look at three common mistakes to avoid when investing for retirement. 

Not owning enough stocks

One mistake that many novice investors make is that they don’t own enough stocks. For example, they may only own four or five different companies. 

This is a big problem. For starters, it means that stock-specific risk is very high. If you only own four stocks and one of these tanks 50% (which can happen to even the most well-known companies – just look at BT Group or Royal Mail), your portfolio is going to take a large hit.

Secondly, with only a few stocks in your portfolio, the overall value of it is likely to fluctuate quite a lot. You could potentially underperform the overall stock market significantly.

The key, when building a retirement portfolio, is to own a wide range of stocks across different sectors so that your portfolio is diversified properly. By doing this you’ll reduce your overall risk, and give yourself a better chance of generating healthy returns over the long run.

Not investing internationally

Another common mistake that many novice investors make is that they don’t invest overseas. This is known as ‘home bias.’ It happens because, in general, people like to invest in what they’re familiar with. Worryingly, home bias seems to be quite common among UK investors. For example, a study by investment firm Charles Schwab last year found that only 7% of UK investors were looking to make significant investments in the US stock market.

Making this mistake can also impact your investment returns. Just look at the performance of the FTSE 100 index versus the performance of the US’s S&P 500 index over the last five years. Whereas the FTSE delivered a return of 6.3% per year, the S&P generated a return of 10.8% per year (figures to 31 October).

These days, it’s very easy to invest internationally through funds and ETFs and also to find FTSE 100 companies with strong international businesses. So, there’s no excuse for not adding some international investments to your portfolio for diversification purposes.

Not matching investments to your risk tolerance

Finally, another mistake that can put your retirement at risk is investing in the wrong kinds of stocks. Given that your capital is at risk when you invest in the stock market, it’s crucial to ensure that your investments match your risk tolerance.

All too often, people buy stocks that aren’t suitable for their requirements. For example, you hear about people who have invested a large amount of money in speculative small-cap stocks such as Sirius Minerals in the lead up to retirement in the hope of quadrupling their retirement pot. This kind of strategy is a recipe for disaster.

If your goal is to build a large retirement pot through the stock market, it’s important to think about risk as well as return.

The post 3 investing mistakes that could put your retirement at risk appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

According to one recent personal finance study, on average, those aged 55 and over in the UK believe that they need an extra £184,484 on top of their current savings and pensions to live a comfortable lifestyle in retirement.

Another study found that the average pension pot of those aged 55-65 in the UK is just over £100,000, which is a long way short of the £300,000+ or so you need to live comfortably in retirement. Clearly, many people are more than a little bit short when it comes to retirement savings.

The good news, however, if your retirement savings are still on the low side, is that it’s actually possible to boost your pension AFTER retirement age. Here, I’ll look at how those aged 65 and older can boost their retirement savings.

Keep working

The first thing to realise is that there’s nothing stopping you from working a little longer after you turn 65 in order to boost your retirement savings. Given that the ‘default retirement age’ no longer exists, no one can force you to retire. Today, many people in the UK (over a million people last year) are working past 65 in an effort to save more for retirement with some even working into their 70s.

Bear in mind that working longer doesn’t necessarily mean staying in your old job. It could be a great time to try something new. Nor does working longer necessarily mean working nine-to-five. You could potentially work part-time, or even on a freelance basis through websites such as PeoplePerHour. Whatever your skill-set, there are plenty of ways to find work at 65 today.

Think outside the box

There are also many ways to generate income today that don’t involve working for someone else. For example:

• If you own your home, you could rent out a room on Airbnb.

• If you own a car parking space and don’t use it, you could rent it out on websites like Stashbee or JustPark.

• If you’re not using your car, you could even rent that out on websites like Getaround.

Ultimately, technology has made it easier to earn some extra income. With a little bit of initiative, you could potentially bring in hundreds of pounds per month through the internet.

Save into a pension

Finally, it’s worth noting that you can pay into a Self-Invested Personal Pension (SIPP) up until age 75.

The benefit of continuing to pay into a pension is that you’ll receive tax relief on your contributions. So, for example, if you’re a basic-rate taxpayer and you make an £800 contribution into your SIPP, the government will top this up to £1,000.

You can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a SIPP and qualify for tax relief. And even if you are not earning, you can still contribute up to £2,880 each tax year and receive tax relief on your contributions.

If you’re looking to boost your pension after 65, paying into a SIPP could be a smart move.

The post Avoiding State Pension misery: how to boost your pension pot after 65 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.