If you haven't started investing in the ASX and you're wondering whether it's worth investing for your retirement, you've come to the right place. Here are 3 ASX investing strategies for Australian's looking to retire in the next decade or so.
An important part of deciding whether to start investing for your retirement is planning how much you'll need and for how long. Thankfully, the Australian Government provides a handy calculator to do just that.
Have you worked out how much you'll need for retirement, and you're not quite there yet? Or maybe you would like to live the high life throughout your retirement, but your savings and super won't allow it.
There can be a lot of value in a properly planned, long-term strategy to invest in ASX listed companies. Particularly right now, as low-interest rates and bond prices mean that cash savings accounts and bonds aren't as prosperous as they once were.
Looking to begin investing for retirement later in life?
The ASX Australian Investor Study 2020 found that of Australians who hold shares in the ASX, 23% only began investing in the past two years. So, you are not alone as a new investor.
Further, 17% of Australians who invest in the ASX are already retired. There's no deadline by which you must have your foot in the investing door.
3 approaches to save for retirement by investing
It's important to note that no investment is risk free and any advice within this article is general. You must take a personal approach to all your investments.
Create a low-risk portfolio and stick to it
If you're just starting to invest later in life, you won't want to risk your money more than necessary, especially if you don't have a long time frame in which to earn back any losses. Therefore, it's important to protect your nest egg as much as possible. That means diversifying and committing.
Commitment is important because the market is a wave. Your investment will most likely go up and down many times during its life. Don't let that worry you. The ASX has a track record of general growth (of course, past growth doesn't guarantee future growth), but particular industries and commodities don't necessarily. That's why diversity is important. If you have a little bit of money in many shares, you're better protected from volatility than if you make big investments in a small number of shares.
Invest in industries that both yourself and experts believe will grow
This approach is slightly riskier than the previous one and research is key. If your plan for investing for retirement was to 'set and forget', this is not the strategy for you. That said, it might appeal to more hands-on investors.
It involves using your life experience, knowledge of certain industries and – once you've ascertained that some reputable experts agree with you – investing into that which you know best. This approach requires some balance. You need to have found a niche, but you likely want that niche to be relatively stable. For instance, someone who is knowledgeable on the lithium-ion battery technology and mining sectors may have been able to predict its recent value surge and capitalise on it.
One easy way to invest in a niche is to find a relevant exchange-traded fund (ETF) that tracks a particular sector.
Remember: No matter how sure you are, you're still probably safer to diversify your investments and EFTs offer a level of diversification over investing in individual stocks.
Invest in dividend-paying shares
If neither previous option sounds like your cup of tea, there is a third approach. Investing in dividend shares is not a clear-cut growth strategy, but if done right may support you through retirement.
Dividends are a proportion of a company's profits that are paid back to shareholders. Because that money isn't reinvested into the company, it tends to slow down growth. That said, growth or loss is never guaranteed in the share market, but neither is a dividend. Most dividend-paying companies pay out a dividend every 6 or 12 months, but they can pay more or less often. In fact, they don't have to pay at all. Also, the amount that reaches your pocket from dividends is likely to be unstable as it reflects a company's profits and whims.
You can plan to invest in enough dividend shares to pay a sort of 'wage' during retirement. If that sounds like it would work for you, you probably want to invest in companies with a strong history of paying out regular, increasing dividends. That way you're less likely to get caught out with inflation later on.
