Planning for retirement from a standing start aged 50 may seem like an impossible task at first glance. However, there is still time to build a retirement nest egg that provides financial freedom in older age.
Through focusing on assets that can offer high returns, you could increase the size of your retirement portfolio. In addition, buying high-quality stocks with strong fundamentals at low prices may lead to an improving outlook for your retirement.
Asset allocation
Deciding which assets to hold in your retirement portfolio can be a difficult decision. After all, the higher potential returns that are on offer from shares, for example, mean they are riskier than other assets such as cash and bonds.
However, at age 50 you are likely to have a long-term time horizon. This means that you may be able to take some risks with your capital to generate a higher potential return. Furthermore, there may be time for a recovery should the stock market experience a difficult period that leads to short-term paper losses.
Therefore, buying a diverse range of companies could be a sound move. It could lead to capital growth that improves your retirement prospects.
High-quality businesses
The stocks you purchase could have a significant impact on your risk/reward ratio, as well as on your capital growth prospects. For example, purchasing companies that have solid balance sheets, strong cash flow and a track record of earnings growth may reduce risk and lead to more consistent returns.
In addition, buying stocks that have defensive characteristics could be a shrewd move – especially as there are numerous risks facing UK investors at the present time.
Fortunately, there are a wide range of stocks that could fit this profile. In many cases they appear to have sound strategies that could help them to capitalise on an uncertain future for the world economy.
Undervalued shares
Value investors such as Warren Buffett have enjoyed considerable success in buying stocks while they trade on low valuations. This can lead to higher returns in the long run, as well as lower risks due to investors having factored in the potential challenges facing a business.
Therefore, seeking to buy high-quality stocks while they trade at discounts to their intrinsic values could be a sound idea. It may improve your risk/reward ratio and ultimately lead to a larger nest egg in older age.
At the present time, there are a wide range of FTSE 100 and FTSE 250 shares that trade on ratings that are below their historic averages. This may mean that now is a good buying opportunity for long-term investors.
As such, now could be the right time to start your retirement plans. Doing so may improve your prospects of retiring with a generous passive income to supplement the State Pension in older age.