Investing in retirement: Is there room for growth?

19/03/2019

As you were building up your investment pot over the decades, in all likelihood you pursued growth above all else, looking to maximising the value of your savings.

Your priority in retirement may well be to generate an income from your investments, rather than to pursue further capital growth. After all, turning on the taps for an extra income stream could help you realise your ambitions.

Glossary

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Even if you are now prioritising income, however, it could make sense to keep a portion of your investments working in pursuit of growth. This might seem counterintuitive, but here are four ways how.

Beat inflation

Inflation is the enemy of all savers, but especially of those who depend on their savings and investments to deliver an income. If returns don’t keep pace with the rising price of goods and services, they will be worth less in real terms.

By investing some of your portfolio for growth, you can offset the erosive effects of inflation if you are successful. After all, asset values normally rise if they perform well or their prospects improve, although there are never any guarantees when it comes to investing.

Diversify approaches

Different investment approaches can often perform differently under the same circumstances. For instance, more ambitious growth-focused strategies tend to perform more cyclically than certain income strategies, in the sense that they tend to outperform when markets are buoyant but underperform when investors are more pessimistic.

Allocating some of your portfolio to higher octane growth-focused strategies could therefore be a counterbalance for more sober income-generating assets, so long as you can accept the risks, which are often greater when you are pursuing growth. In general, the more risk you take, the more your investment could rise (or fall) in value.

Avoid FOMO

You may not have heard of ‘FOMO’ – “fear of missing out” – but you have probably heard of the social media platforms where the acronym is commonplace. The technology companies behind these have been among the most successful stocks over the past decade.

However, someone who invested solely for income would have likely missed out entirely on this terrific growth. This is because emerging companies – and not just in the technology sector – seldom deliver income to their shareholders in the form of dividends, as they are reinvesting their profits (if they have any) for future growth.

By investing some of your portfolio in companies with longer-term growth prospects, you might avoid the fear of missing out on the next opportunities.

Build a legacy

If you have the next generation in mind for some of your investments, it might make more sense to adopt a longer-term approach and give those savings more chance for growth.

When investing for someone younger, their investment horizon is probably more likely to be measured in decades than months. You should therefore be able to take a truly longer-term view and prioritise growing the value of the pot for the future, ignoring the inevitable short-term fluctuations in the value of assets or any income considerations.

Depending on your time horizon and your attitude towards risk, investment strategies that target capital growth could therefore make a valuable contribution towards your longer-term financial security – and possibly that of your family.

The views expressed in this document should not be taken as a recommendation, advice or forecast.

When you're deciding how to invest, it's important to remember that the value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. If you’re at all unsure about the suitability of any investment, please speak to a financial adviser.