Planting Your Retirement Tree

When’s the best time to plant a tree?

The question also applies to retirement planning because, of course, it’s the same answer: almost always right away.

There are several reasons.

The first is that stock markets grind upwards over the long run. They rise and fall in the short term. But the long term, the timeframe most suited to saving for retirement, is a story more of rising than falling.

You can see for yourself below. This is the FTSE100 over its full history. Given a time machine and choice of exactly where to start investing you might reasonably select 31 January 1984 – the start of the chart.

Nothing remarkable happened that day. But, over the following 40 years, an early 1984 investment would have trended upwards – sometimes stuttering but always recovering.

Imagine having the opportunity to start your savings journey on that first day. You signed your name on the form and, fortysomething years later, your money’s grown without you having done a thing.

But that’s what markets do if you give them enough time. We could share other stock market charts over a reasonably long period – and you’d see plenty of bottom left starts and top right finishes.

The only remarkable thing that happened on that 1984 day was imaginary you signing the ‘invest now’ form. The same could be said of today, looking ahead forty or so years.

Now, this is just the index. It’s the return your money deserves. Our conviction is your retirement saving can do better – because the evidence says so.

So, the second reason is there are some quirks of markets that need time to play out. If you make an early decision to save, these quirks can work in your favour.

For example, academics have shown that being in the right markets is a prudent choice. Their research says this has delivered far better returns than trying to spot the ‘best’ individual companies or the ‘best’ time at which to invest.

Fama and French identified that investing into ‘value’ stocks, as opposed to ‘growth’ stocks, can also benefit your portfolio. In other words, you buy a good company at a cheap price. This particular analysis attracted a Nobel economics prize.

At First Wealth, we look at academic evidence like this and apply it to our clients’ portfolios, with the reasonable expectation they’ll benefit over the long run.

Naturally, we’ll provide different advice to a 25-year-old entrepreneur and a 50-year-old chief operating officer. Their tax positions, time horizons, risk tolerance, family situations and other factors will differ.

But there are also commonalities. One of them might be us posing the question: “Nothing remarkable is happening today – why wouldn’t you start investing for retirement?”

These days it seems hard to be sure what will happen tomorrow. So, all we can do is use the information we have, which are the data markets give us, plus academic and expert interpretation.

In our experience, these signals point to one maxim: start saving for retirement now. Give the tree every opportunity to reach upwards over its life.

Now, we’ve only talked about the power of markets here. We could also have focused on the tax relief that boosts certain types of pension contributions. Or we could have dwelt on the mathematical miracle that is compound interest. We could go on because there are plenty of reasons to start saving right away.

If you’d like to discuss how you might get started, please get in touch. We’ve helped many people in comparable situations. We’re on 020 7467 2700 and hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.