With the State Pension amounting to just £8,767 per year, many people may be concerned that it’s insufficient to enjoy financial freedom in older age. That’s especially the case since the average UK salary is around £27,000 per year, which means it may be tough to even survive on the State Pension alone in some parts of the country.
While the prospect of this may be disconcerting, it’s possible to build a nest egg by retirement for a second income. Doing so may be simpler than many people realise, with even modest amounts of savings each month potentially producing a sizeable amount when commission costs are minimised and growth prospects are maximised.
Regular investing
For many people, the possible costs involved in investing in the stock market can dissuade them from buying and selling shares. However, with the advent of online sharedealing, even investors with very limited capital can buy shares in order to generate that nest egg.
In order to further reduce commission costs, it may be a good idea to utilise the regular investing services offered by many sharedealing providers. This is where orders from a wide range of their clients are aggregated and then executed on a specific date that’s known in advance. Although this means investors have less influence on precisely when their shares are purchased, it can mean dealing charges fall to around £1.50 per transaction. As such, it could make investing in the stock market more accessible to a wider range of people.
Risk/reward ratio
While nobody wants to lose money on the stock market, it’s a given that there will be volatility in share prices over a variety of time periods. However, this doesn’t mean risky investments should necessarily be avoided. As long as an investor has a diverse portfolio and a long-term time horizon, there’s a good chance downturns and challenging periods for their portfolio will be reversed over a period of years.
Therefore, if an investor has a decade or more until they plan to retire, it could be worth focusing on growth shares. They could be more volatile in the short run, but may ultimately produce a larger nest egg in the long run.
Invest often
While it may be tempting to try and time the market, in terms of buying while it’s at a low ebb, doing so is notoriously challenging. There are a variety of factors that influence share prices, and they can be difficult to accurately consider for even the most experienced of investors.
As such, it may be a better idea to simply invest frequently. With the FTSE 250 having recorded an annualised total return of over 9% in the last 20 years, the potential to earn significant returns from simply matching the wider index’s performance could be high.