Savings And Pensions

Without doubt regular, disciplined saving is a must to accumulate cash for your future needs, for whatever the reason.

The concept involves investing on a regular basis via a regular savings or pension plan. The beauty of this arrangement is that not only does it instill a sense of discipline to one’s investment habits but also avoids trying to second guess market movements and averages the cost of buying an investment. Of course this means that a regular investment of say £100 a month, buys less fund units when markets rise but a higher number will be purchased when shares fall. Markets have been pretty turbulent over the past couple of years and investors have become a little nervous; is the market going up or down!

Why Invest on a regular basis?

The easy answer to that is “I want to accumulate wealth”. OK, let’s take a look at what regular saving is all about. The following are some interesting observations:

• My business is my pension – I don’t need to save because I invest all my money into my business. But what happens if the business fails or approaching retirement you cannot sell your business?
• I’ll sell my house and downsize – have you heard of the property market boom and bust? You may not be able to sell because that’s what happens in a falling property market.
• My money is in the bank – I don’t want to risk my savings by investing into equities. I know too many people that have lost their savings.
• I’m too young to start a pension – This one is a classic. Some people have no choice but to join a pension scheme, even in their teens. Those early years have a tremendous impact to the size of your fund at retirement. Each year that goes by without contributing to your pension, the amount to invest increases exponentially.

Yes! The above reasons may be valid to some, particularly to those who have experienced bad times in the stock market. But to the majority, investing regularly will give you peace of mind and a healthy bank balance when you most need it.

Let’s have a look at the benefits of investing regularly:

• Disciplined saving/investing – By disciplined I mean regular, preferably on a monthly basis, as most people get paid and work out their budget on a monthly basis. Calculate the amount you can save comfortably. For example, deduct your normal monthly expenditure, bills, mortgage etc, holiday money and savings for a rainy day and what’s left is your potential regular monthly investment. Now, consider your employment. Is your job secure, changeable eg different contracts, will you remain an expat or will you return home? The more secure your situation the more of your spare income you have to invest. The calculated amount must be sustainable no matter what your job or contract is.
• Diversity of funds available – Most pension and insurance companies have a good range of funds to suit your needs. The main difference will be in the various charging structures and the flexibility of their contracts. Some even offer loyalty bonuses as an incentive to invest for longer periods which could negate the charges.
• Pound/Dollar Cost Averaging – This can make a huge difference to the amount you receive at the maturity of your savings or pension plan. Each month your savings buys units or shares. The price of the units will rise and fall and therefore you will buy more or less than the previous month. This works particularly well in a falling market. It has been demonstrated over the years that you will benefit by the increased amount of units allocated to your savings plan because of the Pound/Dollar cost averaging effect.

See the graph below:

Conclusion

The point of saving with a disciplined approach is to accumulate your wealth in such a way as not to notice it. It’s like another overhead or household bill; they have to be paid and most times paid through the bank via direct, standing order or visa, etc.

The one thing you can be sure of is, if you didn’t have a disciplined approach to saving then you will certainly have to do without a welcomed cash sum when you really need it.

Interested In Saving With Orion International?

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