Investing for Retirement
When people are investing for retirement they are usually concerned with two things. Income, and Security. "I want my money to work better than the bank but I want it to be safe"
This is very different from investing for retirement where people are mainly concerned with Growth.
So how do we approach investing for retirement?
9 times out of 10 we are looking to invest in balanced funds. We've found that property investment can be a good way to invest for retirement but it generally does not provide enough income in retirement.
For an average 65 year old we are mainly investing in balanced funds. 50% shares, 50% fixed interest. This varies based on personality and personal situation. Often we separate the investment into 3 buckets,
money needed in 3 years or less = Defensive
money needs in 3-8 years = Balanced
money not needed for 9 years or more = Growth
The main idea is that you don't stop investing when you stop working. Taking an income out of your investment is easy. We setup an automatic rule allowing you to receive a set amount of funds each month and this is not taxed as it is not technically income, even though it feels like it, and we do call it income.
The key part of this is working out how much income you should take. You probably don't want to die rich in cash and poor in life experiences but you also want to be able to afford to keep living.
A lot of people take out about 4.5% of their funds each year and the investment amount should stay flat.
But an equal amount of people would withdraw around 7% each year knowing that they will be eating into their funds but that's ok for them as long as they can see that the funds will last their lifetime.
As for the funds to invest in, we just need to stick to basics.
- Diversify. Invest in lots of different companies in lots of different countries
- Look at an investment process that has a long record of outperforming. For us that means allocating more into cheaper and more profitable companies
- Get the right amount of fixed interest
Probably the most important ingredient in success is in the behaviour of you as an investor. It's 90% of the investing battle. It's very hard for people not investing in funds throughout their life to suddenly get comfortable with something they don't understand, and where they can see a new price every minute of the day.
The best way to get around this is to get used to it. A lot of our large investors now started with a $10,000 investment just to hold it and get comfortable that it works. We prefer them to invest a larger amount when they are comfortable and not before.
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