When retirement planning, we have previously talked about the importance of being in control of your spending (see related article here).
In this article, we will talk about how to invest your savings.
Do you have an investment plan
Key things to consider when investing

What type of retirement you have, will depend on how you have invested in the last 10 or 20 years. Many people have a collection of investments, but not an actual plan. Here are what we think are the four key things to consider.

1. When do you want to retire and how much will you need?

Have a good idea of when you want to be able to stop working and how much you want to live off each year. This is the part that most people overlook. It is really important to know how much you need to have invested outside of super to be able to figure out how much you need to save each year.

While super is the most tax effective way of saving for retirement, if you want to be able to stop work at 50 or 55, you will need investments to be able to live off until you can access your super.

2. Consider your risk comfort

Consider the level of risk you are comfortable with. There are five different types of assets. Businesses, property and infrastructure, alternatives such as bitcoin and private equity, bonds, and cash.

The first three assets are called high growth assets. For the purposes of this, I am going to ignore the third group (alternatives). Cash and bonds are conservative assets. As the name suggests, high growth assets give you the potential of higher growth, especially if you reinvest the dividends. Long term returns for these are between 7 and 10 per cent. However, the downside to these is you also have a higher chance of losing your money if you don’t do it right.

Cash and bonds on the other hand give long term returns of between 3 and 6%, although you have much less risk of losing your money. You need to be clear about whether you are comfortable taking the higher risk of losing your money, with the bonus of higher potential returns.

3. Diversify your investments

The third step is to diversify your investments. Within each class of asset, there are lots of different variations. For example, with businesses there are your own personal business, and there are Australian or international listed companies. Within the listed companies you can have those with a technology focus, or healthcare, or construction, or banking. In property you can have residential or commercial property.

A well-diversified portfolio will include assets of different sizes and locations. The biggest mistake we see is people chasing the last big thing (usually after it has risen substantially) or investing in one or two similar assets for the dividends (for example the big four Australian banks).

4. Ability to sell your investments

The last thing to keep in mind is liquidity (i.e. being able to sell your investments). With super or share market investments, liquidity is not a big issue as you can sell down whatever you need and have money in your account in a few days.

However, while a business or investment property can be great at building wealth, there can be liquidity issues when it comes to retirement planning. With your own business, if it does not generate enough profit, you may need to sell some or all of it. This takes time and planning. While not impossible, it needs to be given a lot of thought prior to retiring. Likewise with property. You cannot sell the bathroom of an investment property to fund an overseas holiday. You either keep the whole thing or sell it.

If you want a secure retirement, make sure you start thinking about it sooner rather than later. To discuss with us, book a chat with Phil via the link below or call us on 0417 034 252 or email at office@constructwealth.com.au.

About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.

General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)

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