When you are planning for your retirement, it is important to ensure that your hard earned savings will be there when you need them most.
Having a good investment strategy is critical to begin with, but once retirement starts looming closer it becomes more important to consider preserving your wealth rather than simply accumulating it at a rate of knots.
Fortunately there are a number of strategies to consider to achieve this.
Firstly, decreasing your investment risk by selecting a lower portion of growth assets will reduce the effects of a market crash. This would have to be weighed up against your retirement needs to ensure that you still achieve the returns you expect in the designated timeframe.
Becoming more popular are Capital Guaranteed or Protected investments. These offer security for your retirement savings by ensuring that at the end of a certain term your investment balance will be at least the same as it was at the start of the protected period.
There are even Protected Income style features that allow you to receive a designated level of income throughout the term even though your market linked investment may have long reduced in value.
How Do They Work?
There are many different ways to achieve a guarantee or protection on your investment.
- Often the investment company will use a portion of your money to purchase capital protection via a bond, with the remainder of your money invested.
- Other companies might use options and derivatives in order to achieve the same outcome.
- Sometimes a guarantee is provided by investing through a life insurance company.
What Are The Benefits?
The benefits of using a Protected investment are peace of mind, security and certainty of an outcome that you want. In some cases, having a capital guarantee can allow you to invest in growth assets to a greater degree than you may have previously thought possible with just a small cost to pay for the protection.
What Should You Consider First?
Investing in a Capital Guaranteed or Protected product is not the same as putting your money in the bank – Depending on the nature of the guarantee you may not get all of your money back if the provider of your investment gets into trouble.
Check first that the company who is providing the guarantee is a strong company with the resources to back itself.
What is the cost of the guarantee?
- Sometimes the cost of the guarantee might mean that the chosen investment may not achieve returns even close that of a rolling term deposit over the same period. It is important to check that the fees payable are low enough to give your investment the best opportunity to achieve the results you want. When you factor inflation into the equation, you have a powerful eroding force working against any return that you make.
Can you access your money early?
In the event of an emergency, you may want to access your money. Ensure that you are comfortable with the terms of breaking free of the capital guarantee or protected capital product before you invest to avoid heartache at a later stage.