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Life moments: preparing for change

Tom Stevenson

Tom Stevenson - Investment Director

Life is full of changes. Some of these we choose; others are thrust upon us, out of the blue. Most have financial implications, which can throw us off course if we are not well-prepared. If we plan ahead, however, most of the life moments that come our way can be taken in our stride.

The list of life moments is long and varied. Many are times of great happiness - graduating from university, getting married, having a baby, buying our first house.

With others it can be harder to see the silver lining. The loss of your job, divorce, bereavement. Things happen that we might not choose and sometimes they can have a big impact on our financial, as well as our emotional, lives.

There’s a third category of life moment, which can be either good or bad, depending on the context. Leaving full time employment can be a positive choice that opens up a new world of opportunity, or it can be an unexpected and unwanted redundancy. Retirement, too, can be a transition to a crimped struggle to make ends meet or the opening of a door to a comfortable freedom to live life on your terms.

The short video below provides insights into how some real, ordinary people - experienced investors and novices alike - are tackling the very different moments they are experiencing today and expect to live through in the future.

They are a fascinating mixture of hopes and fears, long-term plans and short-term swerves. There are some regrets about actions not taken and some gratitude for the hands our investors have been dealt.

Not all of us will experience all of these life moments, but one that all of us probably aspire to is a long, healthy and happy retirement. So how can you stack the odds in favour of making this key life moment something to look forward to?

Start early

Many of us put off saving for our retirement. Let’s face it, there are plenty of other calls on our money in our 20s and 30s. We’re probably not earning that much, we or our partner may be taking time off to bring up young children, and we’re desperate to get on the housing ladder.

So, putting aside even a little bit to get our pension savings going might well be low on our list of priorities. It shouldn’t be. The reason for this is the magical power of compounding. Adding new interest to interest already earned is transformational when it comes to growing your savings.

Building up a meaningful sum of money is hard if you leave it too late and surprisingly easy if time is on your side. Time, in fact, is the most powerful force of all in investment. Don’t squander it when you are young - even if you can only afford to put a seemingly small amount aside when you’re starting out, just do it. You will thank your younger self in due course.

Another advantage of starting early is the important edge it gives you when it comes to riding the inevitable ups and downs of the market. If you begin saving for retirement in later life you will not have the luxury of looking through the rises and falls that come with the territory of stock market investment. If your retirement is still many years away, however, you can be much more relaxed about a market correction because you will have plenty of time to regain any temporary losses.

Having the time to repair any short-term damage to your portfolio also means that you can go in search of higher returns even if they might come with greater volatility along the way. You might, for example, be able to consider investing in smaller companies or emerging markets in a way that a more risk-averse investor cannot.

Have a plan

Changing circumstances mean that we may need to change direction during our investment journey but without a plan we are unlikely to get where we want to.

Part of any retirement plan is being realistic about the kind of life we want to lead and how much that might cost. A good starting point for calculating what you will need to retire could be our retirement planning tools. These will help you understand the income you will need in retirement and whether you are on track to achieve it.

Planning your finances will help you navigate the future. The steps you take today may help you live the life you want tomorrow.

Watch more Invest for Life videos

Important information: The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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