Discretionary Investment Management | Tiffany Gervaise-Brazier
17 May 20

I’ve just started my career, when should I start saving for my retirement?

This article from portfolio manager Tiffany Gervaise-Brazier appeared in the Guernsey Press Investments supplement

Even thinking about retirement, let alone starting to save for it is unlikely to be a priority when you receive your first wage slip. When starting your career and finding your feet in a financial sense, any savings you do start to squirrel away in your bank account are rewarded with interest rates at record lows. Add the corrosive effect of inflation to those savings and the prospect of retiring to a life of luxury seems somewhat unobtainable.

Whilst the effect of inflation has been negligible in recent years, it is important to be mindful that cash, generally, loses value over time - £10,000 in a savings account today is unlikely to possess the same purchasing power (i.e. your ability to buy stuff) in 40 years’ time when you may be thinking about retiring.

It is not all doom and gloom though, as thankfully there are ways to make your money work harder for you and investing is one potential way to achieve this. History demonstrates that, in the vast majority of scenarios, sensible and considered investing returns significantly more than bank interest would have done over an extended time period (though past performance of markets is not a guide to future returns).

When it comes to starting your investment journey, you may feel slightly intimidated because you don’t fully understand the extensive jargon which tends to be associated with the industry or you simply do not know where (or how) to start. Hopefully, I can help dispel a few myths and reassure you that now could be a better time to start then never!

The problem with retirement is that it seems such a long way off compared to the short term, and there are inevitably more fun purchases that could be made now. Consequently, any investing decisions tend to be delayed until our financial situation becomes more stable. However, the irony is that younger people have advantage in the investing world – even with the burden of university debt, the cost of moving away from home and starting-level salaries – they have that most precious of investing variables: time.

In terms of investing, time is a far more valuable commodity than any which can be bought and sold on the stock market. I can’t emphasise enough that it’s not how much money you have at this stage, rather it is how much time you have left to invest. Having time of your side allows you to benefit from the effects of compounding. At this point, I hope you already feel a lot wealthier than when we started!

Compounding, simply put, enables you to grow your wealth by reinvesting the returns you make - and earning returns on your returns. By continuously re-investing the earnings you receive you can increase the returns you can expect. And history shows us that this is true.

The bottom line of investing is that without risk, there can be no return. But over the long term, time, gives your investments the ability to ride out the effects of the market moving up and down. You’ll be pleased to hear that there is little evidence to suggest that anyone can successfully pinpoint the bottom of the market!

Regardless of this, it can be difficult to come to terms with the fact that your hard-earned money could experience periods where it is worth less than its original cash value, but again that is short-term thinking. Investments do go up and down in value but if you are saving for the long-term, my advice would be to not concern yourself with what is happening this week, this month or even this year.

It is completely understandable to have concerns about beginning your investment journey at a time when we are experiencing unprecedented levels of uncertainty. However, for young people who have a long investment horizon, a market down-turn has historically represented an excellent time to start considering investing.

Another common misconception is that to be a successful investor, you have to uncover the next market darling - the next Apple for instance. This is not the case and I am personally reassured of this by the following quote from one of the first investment books I read, The Little Book of Common Sense Investing, which says “Don't look for the needle in the haystack. Just buy the haystack!”

In investing, arguably the most difficult factor to overcome is your emotions. Too often, we all let factors (not limited to those discussed above) prevent us from investing. But particularly at the start of your career, consistency can ensure that you keep your long-term financial goals in mind – and contributing a little each month, or each quarter, will help you work toward those goals without having to actively thinking about it. Such a strategy can also help overcome the fear of guessing when is a good time to start investing.

Of course, you might need to tweak the plan on occasion and therefore investment solutions need to be flexible as your goals or situation changes. Overall, though, do your best to stick to your plan and not make huge changes based on market performance or emotions. The best time to start looking at the option of investing is as soon as possible - the earlier you start, the longer your money will be working on your behalf.

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