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Cityam L How To Save £1 Million By 65

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They got to be kidding right ?

1. Buy the most expensive home you can afford

Property prices will recover eventually even if they don’t double within 10 years. This is always a good investment because you can live in it. There will almost certainly be a recovery in house prices by the time you retire which should enable you to trade down and put some cash in the bank.

2. Consider buy to let

Or buy a second home either in the UK or abroad. While mortgage money remains tight rents are more likely to go up than down. A holiday home can be used by the family or to provide income through holiday lettings and if life gets tough you can always rent it out long term. Make sure that the potential rental income will cover the borrowing costs and remember, buy to let is not a totally hassle free investment.

3. Join the company pension scheme

If your employer is making contributions on your behalf, otherwise save in an ISA (individual savings account). Most people will still be obliged to buy an annuity at age 75 if they save in a pension and annuities are very poor value for money. At today’s rate of around 6% for a 65 year old, on a £100,000 annuity purchase you will have to live until age 82 just to get your money back. You will be better off having control of your long-term savings with an ISA.

4. Invest in the stock market

Take a belt and braces approach and assume that long term you will also be able to make money from shares – although you will probably have to look to China and the Far East, the BRIC countries (Brazil, Russia, India and China) as well as other emerging markets to see the long-term average return of around 7% a year on your equity portfolio. Our Citywire Selection guide can help you choose the best investments here.

5. Use your ISA allowance

Put these investments, up to the current maximum of £10,200 a year, in the ISA tax shelter. The advantage of an ISA is that investments roll up free from capital gains tax and you can take tax-free income from them at retirement. Depending on your age, anyone with at least 10 to 15 years to go to retirement can afford to be 100% invested in equities with a substantial chunk – say 50% – in BRIC countries as well as big blue chips like energy companies which trade globally. Take an interest in your investments.

6. Or get a company to manage your investments

If you find decision making difficult and worry about the roller coaster ride in shares, pick a reputable investment house with a good long-term track record and let them make the investment decisions. You may not get the top return but companies like Standard Life, Aviva, Prudential and others have a reputation to protect and are unlikely to perform worse than the average. Consult a good independent financial adviser (IFA) and let them do the worrying. Avoid the high street banks’ ‘wealth management’ departments.

7. Don’t forget gilts

Remember, at an average 7% a year return your investments will double every 10 years. Gilts (government backed stocks) offer guaranteed yields and have produced returns of 7% and more in the past. We don’t know where inflation is going at the moment but gilt yields are starting to rise, admittedly from a low level. If the opportunity arises to lock into a high return from gilts in future, take it. Be prepared to sit on the investment until the gilt matures if necessary so that you are not affected by market fluctuations in the price of the gilt.

Back Your Hunches – assess the risk

Above all you must take an interest in your investments and have the courage to back your hunches. When gilts were yielding 17% back in the seventies many people wouldn’t invest – because inflation was running at over 20% so in real terms they were making a loss. But the canny investors knew that it was unlikely that inflation would remain at 20% so they would soon be sitting on a very profitable bond. And that’s how it turned out.

And invest in yourself

Chris Jones, a chartered financial planner at Torquil Clark, also recommends: ‘Invest in your career. The easiest way to save more is to earn more and the most reliable way to achieve this is by improving your qualifications and gaining experience. Long term this could enhance your income, pension contributions and life style.’

Finally, almost anyone can save if they want to, even with a low income. ‘What about cutting out a couple of cappuccinos a day or giving up cigarettes. The money soon mounts up,’ is Foster’s advice.

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How to save £1 million by 65...

Well, lets see...

The strategy is to get rich using other peoples money, playing on the bigger fool theory, etc. Ok, we need to start making lots and lots of babies, neglecting their education, especially in maths, and keep the western banking system from imploding for quite a few decades.

Sounds like a challenge.

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