What is the right time to begin retirement planning? New research from Hargreaves Lansdown shows that a fifth of customers did not go about the task until they were already in their sixties. But beginning earlier can make retirement planning easier. A fifth of customers either had or planned to start planning for their retirement in their thirties. If I was in my thirties and wanted to set up a Stocks and Shares ISA as part of my retirement planning, here is how I would go about it, with an initial £1,500.
Retirement planning at 30
Warren Buffett compares investing in shares to pushing a snowball downhill. Over time, hopefully the gains will benefit from the miracle of compound returns. As Buffett says about compounding the snowball over time, “The trick to having a very long hill is either starting very young or living to be very old”.
So, there is no reason to wait till one’s thirties to plan for retirement. One in seven of Hargreaves Lansdown’s customers had started by the age of 24. But, if one does wait until the big 30 to think about planning for retirement, I think it still gives a long enough investment horizon that one can hopefully build up a sizeable nest egg in a Stocks and Shares ISA.
I would use that decades-long timeline by taking a long-term approach to my investment. Instead of just thinking about what companies are doing well today, I would consider what I expect to happen over the next three decades or so.
Looking ahead
That might throw up some continuities. For example, I expect that in 30 years’ time, people will still buy homes and food. So I would consider adding shares like brickmaker Ibstock, builders’ merchant Howden Joinery, Knorr maker Unilever, and Twinings blender Associated British Foods to my portfolio.
But I would also look at young companies that have already proven their business model but have a long growth runway ahead of them. For example, I reckon Victorian Plumbing and Dunelm could grow in years to come. Spirax-Sarco continues to innovate after decades in existence, while the younger Judges Scientific has a business strategy that is helping it grow fast.
Choosing shares for my Stocks and Shares ISA
But while I like all of those businesses at the moment, I am not attracted by them all as possible investments for my Stocks and Shares ISA.
What is the difference? Basically it boils down to valuation. A great business with long-term growth prospects could make a very rewarding investment for me. But whether it does so partly depends on its valuation. If I pay too much for shares in a company, no matter how good it is, I could end up losing money even if the business does well. So one of my first moves when setting up a Stocks and Shares ISA would be learning about different ways I could value shares in businesses I thought looked attractive.
A lot of things might happen in the future that no-one expects, so I would always diversify the investments within my Stocks and Shares ISA. With £1,500, I could do that by investing £500 in each of three companies in different industries.
Some fairly small action today could end up having big benefits when retirement comes.