How should I invest when I want to retire in less than 10 years time?

Richard | Hull| 25/06/2020 | 41

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Richard's question in full

I have been paying into Vanguard Lifestrategy for a few months now, despite losses during the peak of the coronavirus outbreak I am now making gains again now. I regret not putting more money into the market at the very bottom in March, but I thought things were going to get a lot worse and I'm quite a cautious investor, but instead the recovery took me by surprise. I still would like to put more money in but but not all in one go, but feel time is against me. I'm 50 now and hope to retire at 60. This gives me just 9.5 years to pay in and grow, do you think this is a long enough period to invest in or am I now stuck with low interest bank accounts? I also read your weekly blog today that was sent to me, it mentions that if we experience higher inflation this could hit shares and particularly bonds. Now this is somewhat concerning, but it may be years away and I can't afford to sit on the sidelines waiting for the dips to arrive. I have my money split between Vanguard LS 60 & 80 with slightly more in 60. So basically my question to you is - with only a ten year timeframe, am I coming to the end of my investing life and should now stick with cash if shares and bonds are likely to take a hit in a few years? But where else is there to go for a health return?

Holly Mackay's Response

First up Richard, I can't give you financial advice. I'm not a qualified adviser and also I don't know your full financial picture. So I am just sharing some food for thought here - hope it helps you to make the best decision for you.

Yours is a really common question and a very hard one at that.

It is a bit like asking me if you should go ski-ing again aged 50. The odds suggest that you will be fine. But the older you get the riskier it gets, and the greater the chances of any broken bones doing more damage and taking longer to heal. But would you say to any 50 year old friends that they shouldn't go ski-ing? Probably not. But if they break a bone, they'd be bloody unlucky and you'd feel guilty. Welcome to my world!

Loads to say.

First up:

Your timeframes. You are only 50. And there is no rule to say that when you hit 60 you need to take all your money out of the stock market.

In retirement we have 2 basic choices. We take our retirement savings and trade them in for a guaranteed and fixed annual income till the lights turn out. (An annuity). OR we keep invested in the stock markets, typically taking a lump sum on retirement and then drawing down a regular chunk every month or year to supplement our income (Drawdown).

Annuities are certain. But right now with interest rates so low, you don't get much and you prevent any potential upside (and of course downside) from markets. As a rule of thumb, take your pension savings and divide by about 20 or 25. That's a rough guide to how much you'd get a year if you buy an annuity.

However, if you live to 90, for example, 30 years from 60 to 90 is quite a long time to lock yourself out of the stock market. So don't assume that these next 10 years are all you have left to be in the markets. You may of course take some of your pension savings as cash when you're 60 (25% is tax free), keep some invested in a 'drawdown' pension and then trade it all in for an annuity when you're older. So maybe revisit your assumed timeframes for continuing your relationship with the stock market?

Secondly...

I think markets in March took us all by surprise and will continue to take us all by surprise for the rest of the year. No-one knows what is going to happen. It's a bit like having a teenager - you just know they're going to be stroppy at some stage but you don't know when or how long for. As we cannot predict the future, drip-feeding in can be sensible. I should think it will mean this year that you get some months where you buy cheap. And some months where you buy near the top. So be it. People to claim to call the market are usually pub bores who gloss over facts!

Cash rates are rubbish and going nowhere fast in the short-term. (We might get inflation at some point which will change this but I think we're some way off that.) So you are facing the most unpalatable choice. Rubbish cash. Or potentially ugly markets. I personally think bonds are a bit pointless right now (but that will anger some people who will violently disagree!) There is no easy answer so it's just a case of mitigating risk. My personal view is that with a 10 year + window you can ride out any storms in markets. As long as you don't bottle it and sell if things get bad. That's a bad mistake to make. If you make your bed, you have to keep lying in it!

Let's think of it in a more day-to-day way. If you tell me that you think stock markets will not grow over the next 10 years, that is similar to saying that you think there will be next to no growth, innovation or opportunity with companies - no room for any big global brands to become bigger and more profitable than they are today. 10 years is a very long time to hold such a pessimistic view for.

A key example is climate change: in order to meet the goals set out in the 2015 Paris climate agreement, investors need to allocate an additional $1.5tn per year to renewable energy and other low carbon projects – and to do so very soon, within a decade or so. Someone's got to get that money!? This will drive growth, expansion and change. See what I mean? There will be some sectors which will grow whatever the broader doom and gloom.

Funds...

Now to the funds you mention. Vanguard is a big credible low-cost global name. It's as safe a pair of hands as you can get. So that box is ticked. 60% in shares is like a single measure gin and tonic. 80% is more like a double. Bigger highs. Bigger lows. In my analogy however the 80% doesn't necessarily equal a bigger hangover if you have long timeframes. If you think back to my earlier comments, you only lose money in stock markets when you are a forced seller. So although the 80% in shares will be more uncomfortable at times, if you don't need to sell - it doesn't matter. And if you think that you will have some money in 'drawdown' pension products after 60, well your timeframes are longer than 10 years.

So maybe your 60% stuff is your 10 year pot. And your 80% stuff is your longer-term stuff? (And really, for 10 years or more, I suspect many people would actually select the 100% version but of course this will be more volatile.)

(Vanguard is a good player but they are passive. People will argue about whether this is the right approach for markets which are likely to fall further. You are in safe hands as I've said and I don't want to overload you. But as you become more comfortable with investing, do read up on the difference between active and passive funds in different market conditions. Not a critical one for today though - don't want to bombard you!)

Read up on annuities and drawdown

I think the first thing to do is to read up on annuities and drawdown. Revisit that 10 year timeframe in your head. Expect great volatility and even a potential crash - that way you can't be surprised. Drip feed in. Make sure you balance your innate caution with making your money work hard enough. Make sure you have enough cash around to weather any short-term needs so you're not a forced seller. Set up a plan and stick to it. Split your money into short-term (cash), medium term and long term pots.

I just worry that with lots of people living longer than ever, nervousness now will force people to sit in cash for 30 year timeframes or even more - and as weird as things are today - that doesn't feel like the right approach.

Hope that helps.

P.S. Money Advice Service has an annuity calculator so have a play on that. Hargreaves Lansdown and AJ Bell Youinvest typically have good information on drawdown. If they fry your brain, try Standard Life for more reading.

Just be aware...

We are not regulated to give personal financial advice - This isn’t full-fat regulated financial advice. Boring Money is a publisher and not regulated by the FCA.

This means we can't help with specific personal circumstances or recommend specific investment products. It also basically means that if we say something daft, you have no recourse to come back and complain.

We’re only allowed to give you a steer or share an opinion or tell you the facts - That said, we promise that our answer to you is an independent unbiased perspective with no commercial gain to make. If you need regulated financial advice, you can find a good adviser via sites such as Unbiased & Vouchedfor.

Our Expert

Holly Mackay

Founder and MD of Boring Money, Holly Mackay has been working in the investments space since 1998. She read Modern Languages at Oxford, with a special focus on Mediaeval French which was deeply interesting and arguably utterly useless.

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- Online Investment Platforms
Lesley James's Response
I am 25 and starting to seriously financially plan out my future. I would really welcome a 'sense check' on my thinking as well as some help on which investment choices to make. My goals are: To invest for 15 years - my risk appetite is very high (i.e. I could afford to lose all my money). Goal 1 - More Important: To have an investment pot of £1,500,000. Goal 2 - Less Important: To be mortgage free. My plan is: 1) Open an annual Stocks and Shares ISA each of the next 15 years. 2) Open Share trading/dealing account. 3) Reduce my mortgage term to 6 years by 2025. I appreciate the above is a lot to go though, but I'd welcome any help and guidance.

Mo | London | 15/10/2018 | 5
- Stocks and Shares ISA
- Shares
- Online Investment Platforms
- Funds
- Other
Holly Mackay's Response
I shall have £10k to invest shortly, and I want to use an actively managed portfolio in a quality company. How would you rate - Investec Click & Invest/True Potential Investor/Nutmeg on the basis of ROI/customer relationship/quality/risk factors etc? I would class myself as a mid-grade risk-taker/reasonably adventurous if appropriate, with a high quality company. I presently use Hargreaves Lansdown and Wealthify but feel the need to diversify. What do you recommend?

Richard | Shropshire | 03/10/2018 | 1
- Online Investment Platforms
Holly Mackay's Response
The recent Metro article which Holly participated in has really inspired me and made me think that investing in shares is something which I would like to do. Unfortunately I am completely thrown about where to start. I would be grateful for any advice you could pass my way. Realistically, I would only have about 2k to invest, so any tips would be gratefully received.

Sarah-Jane | London | 12/09/2018 | 3
- Stocks and Shares ISA
- Cash
- Online Investment Platforms
Holly Mackay's Response
Is there a reason you don’t list Saga in your Best Buys? Additionally, I have purchased a few investment trust shares but can’t work out how the dividends are paid. Scottish Mortgage is an example. I wasn't given an option to choose how to receive the dividends. It would be useful if you could provide some clarity on how investment trusts pay their dividends.

Carl | Buckinghamshire | 07/09/2018 | 1
- Shares
- Online Investment Platforms
Holly Mackay's Response
My wife and I have recently separated. The equity in the house is going to be split 50/50. We don't have any other meaningful assets. We have agreed to co-parent the children equally. My wife is requesting that I pay child maintenance, child care and school expenses. A CMS document states that shared child care results in no child maintenance payments. However, I do agree with the child care and school expenses payments. Our daughter has Autism Spectrum Disorder, so my wife gets a Disability Living Allowance for her and also works full time. If I don't pay the child maintenance, child care and school expenses, my wife is threatening to claim spousal maintenance, and take half my pension. Should I pay the £350/month or take my chances in court?

D | Lincolnshire | 03/09/2018 | 1
- Pension
- Other
Catherine Morgan's Response
Can you advise me on the best approach when looking to invest in a product that offers compound interest? I’m thinking about funds rather than bank accounts. I also have 4 different pensions on the go. Should I keep them separate to diversify the risk? Or consolidate them? How will these pensions be treated when I retire? Will they be considered in aggregate by the tax man?

Craig | Clackmannanshire | 16/08/2018 | 1
- Private Pension
- Online Investment Platforms
- Funds
Helena Wardle's Response
I have about two thirds of my ISA in funds with Charles Stanley Direct and about one third left with St James's Place. I was planning to transfer the remaining one third to Charles Stanley Direct. However the recent platform price increases seem to put me in the worst position possible. After Charles Stanley Direct's fee increase, could I do better elsewhere?

Gerry | Bedfordshire | 15/08/2018 | 6
- Private Pension
- Online Investment Platforms
- Funds
Holly Mackay's Response
I invested my money in a St James's Place managed fund, split into ISAs and bonds, after advice from an adviser who was a St James's Place partner. My investments have done reasonably well, but I've read disturbing reports about St James's Place. Should I have concerns? Should I have found an independent financial adviser?

Glyn | Essex | 09/08/2018 | 8
- Funds
Holly Mackay's Response
I wanted an investment trust with an income, so I put £10,000 into The Investment Company. It delivers a reliable quarterly dividend but the capital value has dropped by 10% since I invested 2 years ago. What are your favourite investment trusts?

Fran | Greater London | 08/08/2018 | 4
- Shares
- Funds
Mark Dampier's Response
Is there an average number of funds that one should ideally hold? I have in excess of 20. I am happy with my portfolio and coverage, but wonder if I have too many funds. The second part to the question is how long should you leave an underperforming fund?

Richard | Hertfordshire | 06/08/2018 | 3
- Funds
Holly Mackay's Response
I'm 24 and would like to begin investing. Am I better off using a robo advisor such as Wealthify/Wealthsimple or a fund such as Vanguard LifeStrategy?

Amanda | Greater London | 06/08/2018 | 7
- Shares
- Robo Adviser
- Online Investment Platforms
Holly Mackay's Response
I am 73 and cautious. There are two areas that your advice would be helpful..what if you just spend thousands on buying the gold standard footsie companies like shell and the rest and keep them for five years and then cash them in ?

DB | UK | 24/07/2018 | 6
- Robo Adviser
- Online Investment Platforms
- Funds
- Pension
Holly's Response
My wife needs to set up a SIPP with a good value, low cost, low maintenance underlying investment portfolio. We want a good mobile app from a well respected provider. Where can we see the options and directly compare historic returns so we can make a decision?

Guy | Hertfordshire | 17/07/2018 | 1
- Private Pension
- Pension
Richard Allum's Response
I hope you can help. I recently consolidated two modest pensions into a SIPP in readiness to start UPFLS drawdown in May (2018). Whilst I was hoping for growth in my investments I wasn’t expecting it to rocket and now find I could well be looking at exceeding the lifetime allowance, possibly even before my first annual drawdown in May, and I’m unsure what, if anything, I should do.

John | London | 03/07/2018 | 3
- Private Pension
- Funds
Richard Allum's Response
I was considering applying for Individual protection 2016, which I understand would give me an LTA of £1,021,390. However, following the inflation rise of the Lifetime Allowance, it seems the LTA is now at £1,030,000. It now seems pointless applying for Individual protection 2016. Have I got this right?

David | London | 12/06/2018 | 0
- Pension
Richard Allum's Response
What are the differences between income and accumulation income funds? How do you declare income reinvested in a fund on your tax return?

C | 05/06/2018 | 0
- Funds
Helena Wardle's Response
If I take a lump sum from my pension at age 55, what is the rate of tax after the first 25%?

Judy | UK | 17/05/2018 | 1
- Pension
Helena Wardle, Certified Financial Planner's Response
We have a portfolio of ISAs/PEPs worth around £250k, currently invested via Cofunds, managed by Chelsea and Bestinvest. I'm told this is quite an expensive option regarding platform charges. Are there better options?

John | Berkshire | 08/05/2018 | 6
- Robo Adviser
- Online Investment Platforms
Helena Wardle's Response
How long does it take to release money from your pension at 55 years old?

Diane | West Yorkshire | 01/05/2018 | 1
- Pension
Helena Wardle, Certified Financial Planner's Response
Do you have information on taking your pension pot before retirement? My husband is 62, on a final salary scheme & is trying to get clear information on it.

Jo | 17/04/2018 | 3
- Pension
- Workplace Pension
Helena Wardle's Response
Can you recommend some very basic books for a 69-year-old widow who is now having to manage her money?

Martha | 12/04/2018 | 0
- Shares
- Funds
Helena Wardle's Response
Hi, I've got an old D.B. pension, approximate value £12k. I would like to invest & top up each month. Who would you recommend? Also I would like to make an investment, & don't know where to start? Thanks

Eve | 04/04/2018 | 5
- Funds
- Pension
Helena Wardle's Response
I am post-divorce with a good settlement which I have only partially invested. Are there any courses you can recommend? I have sat in a number of meetings with accountants and financial advisers feeling somewhat patronised! I am sure that there are plenty of women in a similar position to me (aged 55!).

Eavan | Ireland | 14/03/2018 | 3
- Shares
- Funds
- GIA
Holly Mackay's Response
How can I find a good financial adviser?

Byron | Greater London | 01/03/2018 | 1
- Shares
- Funds
Holly Mackay's Response
My question is about my wife's pension valuation in a divorce situation. She is on a final salary scheme working for a national charity organisation. I feel the CETV value is too low and certainly does not take into account the inbuilt benefits such as guranteed final salary, life insurance.

Jay | UK | 12/02/2018 | 1
- Pension
Richard Allum's Response
I am a 59 yr old retired lady with no income but I have reasonable equity..is it worth starting a pension or is it too late?

LL | Norfolk | 06/02/2018 | 2
- Private Pension
- Pension
Cherry Reynard's Response
Hi, If I take a lump sum from my pension at age 55, what is the rate of tax after the first 25% ??

Gareth | Hampshire | 26/01/2018 | 0
- Pension
Helena Wardle, Certified Financial Planner's Response
I am very lucky to have just received a gift which I want to invest for our retirement. My husband and I aim to retire in around five years. We have 11 more years of school fees to fund, then hopefully university fees for two after that. I've put together a plan for us - can you have a look and see if it makes sense?

Fiona | UK | 18/01/2018 | 6
- Private Pension
- Stocks and Shares ISA
- Junior ISA
- Shares
- Cash
- Online Investment Platforms
Holly Mackay's Response
Can losses in a pension SIPP be offset against anything?

Henryk | Hampshire | 17/01/2018 | 0
- Private Pension
- Pension
Cherry Reynard's Response
We have four grandchildren (2 English living in UK, and 2 Irish living in Eire). We have decided to start savings plans for their futures. Their ages are 18yrs, 11yrs, 8yrs and 4yrs respectively. My age is 75yrs, and my wife is a little older. What should we do, please?

John | Buckinghamshire | 01/01/2018 | 1
- Junior ISA
- Lifetime ISA
- Shares
- Funds
- Inheritance
Martin's Response
I am already receiving a pension from a final salary scheme and I am retired. I have a sum of money I want to invest. Can I start another pension as a saver and, if so, how much can I put in every year?

Collette | Greater London | 25/11/2017 | 0
- Private Pension
- Online Investment Platforms
Boring Money's Response
I am a 59 yr old retired lady with no income but I have reasonable equity..is it worth starting a pension or is it too late?

LL | Norfolk | 10/11/2017 | 2
- Private Pension
- Shares
- Pension
Cherry Reynard's Response
If I were retired and drawing my pension, can I earn an income from doing some sports coaching too? If so, how much can I earn without it affecting my pension? Thanks

Charlotte | Devon | 07/11/2017 | 0
- Pension
Boring Money's Response
I am getting long in the tooth at 79, a little forgetful and I am going through a painful divorce. This has shattered my confidence and I need help.

Richard | Kent | 05/11/2017 | 3
- Private Pension
- Funds
Holly Mackay's Response
I have just sold my house and have a significant sum of money I want to invest. I may want to draw some income but also want to achieve capital growth. Are there funds that aim to achieve both or should I just invest for growth and draw money as I need to for income?

Jon | Surrey | 13/09/2017 | 1
- Funds
Peter Matthew's Response
Please help me. Choosing a pension from Aviva. It asks if I want growth or income? Which one do I choose ? I'm 46 .

Ria | Greater London | 11/09/2017 | 9
- Private Pension
- Pension
Holly Mackay's Response
I am confused about index funds, e.g. Vanguard Equity fund. Do they track an index or include the yield? In the case of Vanguard, their low cost is attractive but their portfolio is made up of other Vanguard funds. I assume these probably each carry a fee structure - is this correct?

Robin | Gloucestershire | 03/09/2018 | 0
- Online Investment Platforms
- Funds
Boring Money's Response
Is it worth using a financial adviser when it comes to switching pensions funds, or should I do the research and pick the funds myself? I am no expert in stocks and shares.

Helen | Dorset | 10/08/2018 | 4
- Private Pension
- Shares
- Funds
Helena Wardle's Response
I've got £20,000 from an endowment policy (astonishing, I know), and I'm looking into how best to invest to get a reasonable return without excessive risk. Any thoughts much appreciated!!

Penny | Peterborough | 09/08/2018 | 1
- Stocks and Shares ISA
- Cash
- Online Investment Platforms
- Life Insurance
Boring Money's Response
I use H&L and although they are a bit 'plumy' on the phone I quite like their website and the costs are OK. So I was thinking of H&L for [my son]. I would be telling him to open these two funds and regularly invest and forget about them for 10 years!

R | Greater London | 29/05/2018 | 1
- Lifetime ISA
- Robo Adviser
- Online Investment Platforms
- Funds
Holly Mackay's Response
Why should I bother with paying into a pension at my age of 55 years now when I have never had one?

Tee | Greater London | 07/09/2017 | 5
- Private Pension
- Pension
Cherry Raynard's Response
Can I sort a pension out myself online?

Sharon | Greater London | 07/09/2017 | 0
- Pension
- Workplace Pension
Boring Money's Response
What might a savings pot of £100,000 get me as a retirement income?

Aboodi | Greater London | 06/09/2017 | 2
- Pension
Holly Mackay's Response
Pensions vs ISA - which one is best?

Roderick | Greater London | 06/09/2017 | 0
- Stocks and Shares ISA
- Junior ISA
- Lifetime ISA
- Pension
Holly Mackay's Response
What funds could my millennial children invest in?

Anthony | Greater London | 06/09/2017 | 2
- Funds
Holly Mackay's Response
What are the changes with pension annuities? My mother in law has asked as her retirement is looming. I've read in the press it's changing but it all feels confusing. I just need some simple clear advice. Thanks

Keith | Greater London | 06/09/2017 | 2
- Private Pension
- Pension
Cherry Raynard's Response

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