10 steps to retirement riches

Wanting to generate a pot of wealth to enjoy in your retirement? Let’s cut to the chase with 10 steps that will help you get there. 

1. Have a goal

Like trying to find a destination without a map, it’s going to be hard to hit your financial goals if you don’t know what you’re shooting for.

Take the time to work out what you want and how much you think you’re going to need, in monetary terms, to do it. Even if you’ve got decades to go until retirement, a rough estimate is better than none. 

2. Start saving

Hitting targets becomes easier the earlier you begin saving. So, start already!

Since will-power is finite, a great financial habit to cultivate is saving a regular amount on the day you get paid (or, better still, automating the process via direct debit). After all, waiting until the end of the month will only increase the temptation to spend what you have.

3. Have an emergency fund

Three-to-six months of living expenses should do it. Because life happens.

4. Buy stocks

The stock market may have the reputation of being risky, but the likelihood of doing very well out of it improves with time. Study after study has shown that equities give the best returns of any asset class, including cash, bonds, gold and property.

Ignore the noise (such as Brexit) and focus on the long term. 

5. Get a SIPP

To reap the most reward from your investments, you’re going to need to keep the taxman at bay. That’s why holding your investments in a Self Invested Personal Pension (SIPP) — which stops him from charging you — is a great idea.

If a SIPP doesn’t appeal, at the very least use your ISA allowance. 

6. Do more, save more

Once you’re saving something every month, you then need to do what you can to maximise that amount.

This could involve taking on extra work, either at your current job or a side hustle like tuition or selling things on eBay. Thanks to compounding, even modest contributions will make a real difference over time. 

7. Stop splurging

A life focused solely on planning for the future and sacrificing the present sounds pretty miserable. Nevertheless, it’s important to find ways of living below your means. Take a less exotic (but just as enjoyable) holiday, buy second-hand rather than new and/or borrow things you might need from friends instead of purchasing them.

Above all, learn to distinguish the things you actually need from things you just want.

8. Get diverse

Selecting only a few stocks and thinking they’ll all be winners is asking for trouble. That’s why it’s important to spread your cash around.

Ensure some money is invested in defensive, blue-chip businesses and not just in racy technology shares. If in doubt, opt for cheap exchange-traded funds.

9. Do little

In contrast to the belief that you only get somewhere in life by taking action, one of the best ‘moves’ you can make in attempting to grow a big pension pot is doing very little. That means only selling when truly necessary and not looking at your portfolio too often. 

10. Stay patient

Linked to the above, recognise that investing is about doing little for decades, rather than a few months. Building a sizeable chunk of wealth doesn’t happen overnight so get comfortable.