An Ultimate Guide on Investment for Retirement in the UK

Investment for retirement in the UK or globally can help you lead a comfortable retired life but it is hard to decide where to invest and how to decide. Therefore, we decided to write an article to help you get a crystal clear understanding of what are the best assets to invest in for making an investment for retirement in the UK. In this guide, we will focus on the assets that are the best in the UK for making an investment for retirement. We will also cover the best Platforms from where you can buy or make investments on your desired assets. Make sure to stick with us until the very end of the article.

Guide on Investment for retirement in the UK

The very first step is to choose an investment asset that will pay you more in the long term. 

Choose an Investment

First of all, you should know what investment asset you want to invest in to make more money for your retired life. Below we are listing down the most beneficial investments that promise to pay you a healthy regular dividend to invest for retirement in the UK.

#1 Stocks – Best Investment 

Stocks are considered the simplest and oldest investment. In stock investment, an investor buy shares in a company that issued the stock. Stocks are simplest because of the fact that anyone can buy stocks even those who are not experienced investors. Buying a stock means that you are buying indirect ownership of the company because of the shares you hold in that company. Indirect ownership doesn’t mean that you will sit next to the owners of the company in their next official meetings. All it means is that if you choose to exercise it, you get a right to vote in those meetings. 

When buying stocks there are a few metrics that you should consider are mentioned below:

Quality

When buying stocks for retirement income purposes the very first thing that you should take into consideration is the quality of the company in terms of its balance sheets. That is whether the dividend yield company you are planning to invest in has sufficient international resources to maintain and or to grow its dividends. So, before you invest in the stocks make sure to check the historical progress of that dividend stock and whether it has been increasing or not. 

Guide on Investment for retirement in the UK - Quality stocks

Free cash flow

Another metric that we have on our list is “Free cash flow” which is whether the company has the potential to survive in the downturn in the economy. To ensure this you should check whether the company has enough resources or not. 

Dividend yield 

Another most important metric that we have on our list is “Dividend yield“. As long as the company is paying a dividend of 2% to 6%, it is considered a good dividend yielding company but when the company pays a dividend of 8% or more than that, then it means either the company is not reinvesting profits or it is borrowing or selling assets in order to maintain the dividend.

Dividend payout ratio

Considering dividend Payout ratio is one of the most important things. It is the measure of the ratio between the value of dividend paid compared to net income. Make sure to check whether the company is paying all its earnings in the form of dividends or not. If yes, then that means the company is not reinvesting for a brighter investing future of the company. Keep in mind that a payout ratio of less than or equal to 50% is considered good. 

Earnings

Before you invest in a company’s stocks make sure to check the earnings history of at least three years. If it is positive, consider it as a good sign. Being positive means the company has experienced no losses and has been growing in that time. 

#2 Bonds

Another investment that you can consider for retirement purposes is Bonds, the safer and consistent investment. Being risky is in the nature of investments. Every investment contains risk to some extent, some are riskier than others and some are less riskier than others. The Bonds fall in the low risk category. Hence, it is suitable for those who are looking for fixed returns or for retirement purposes. Bonds are also preferred by those who are willing to diversify their portfolios. 

Bonds are simply a loan given to a company or a government by an investor. That means the company or government borrows money from investors, who in return are paid interest on the money they have loaned. 

Now the question here arises is why do companies and governments issue bonds? 

Bonds are simply issued for new projects or for ongoing expenses. The bonds are fixed-rate saving accounts that are locked up for a period. That means once you have invested in bonds you then cannot touch your money until the bond is over. That means, bonds are so beneficial as they allow you to preserve your money and as well as generate additional income. Bonds are often viewed as a more predictable and stable form of investment because it offers you regular schedule payments and return of invested principal. 

#3 Real estate

Over the past 50 years, real estate has become a popular investment vehicle. It is not only about investing in homes, there are a lot of other options also such as investment funds, SCPI (shares of companies that manage real estate). Among all the investment Platforms, real estate is the one to offer low volatility. The best part of investing in real estate is that no matter what it will never go down to zero. The average returns for real estate investment heavily depend on the type of investment, that is whether it is rental, commercial or residential. For example, the average return on the rental estate is 7% per year. Real Estate Investment doesn’t offer high returns but it is the safest investment available among all the investment options. Generally, investing in real estate requires significant capital which depends on the type of investment asset class in the real estate sector. 

Property Funds

When investing in real estate, investors have the choice to make investments. They can either invest directly or by purchasing a house, flat or otter property or by choosing to invest through property funds, like REIT ( Real Estate Investment Trust). 

Buy Direct 

Buying direct can be a little complex and hectic as in doing so you have to take care of all the things from managing the assets and tenants to deal with tax and insurance issues or you can choose an agency that can do all these things on your behalf.

Buy-to-let 

You can also choose the buy-to-let option but at present, this is seen as a less attractive approach because of the changes in the tax regime. 

#4  ETF

An exchange-traded fund or ETF is an investment, which is a combination of mutual funds and stocks. Just like Mutual Funds, in an ETF also people pool their money together in a fund that invests in different things like stocks, bonds and other securities. Just like stocks, ETFs can be bought and sold during the day, just like stocks.

ETF investment is ideal for various investments as its expense ratio is far less than that of mutual funds. Hence, it offers low costs. Apart from low cost, the ETF also offers increased transparency and instant liquidity. It offers you to invest in with a fraction of cost and get exposure to a particular security.

Best Platforms to Invest for Retirement in the UK

There are a variety of trading platforms in the market but choosing one that meets your financial goals can be very exhausting. That’s why to save your time and energy below we have listed down the best trading platforms that you can opt for buying the best investment assets for retirement purposes in the UK. 

eToro- world’s finest broker

etoro best trading platform- investment for retirement in the UK

eToro is the world’s finest trading platform that offers markets for all the major asset classes. This platform is always at the top of our lists of best brokerage platforms if you are based in the UK. This platform is packed with all the amazing qualities on which we measure the best brokerage platform. It is the most favourite trading broker in the UK for several reasons. However, the very first reason that attracts thousands of traders towards it is that it offers a variety of assets and doesn’t charge any Commission. Except you will be required to pay a 0.5% fee on all your deposits and $5 on each and every withdrawal. It is the cheapest brokerage platform in the UK. 

For beginners, eToro provides the copy trading feature. This feature allows you to copy ongoing trades of expert traders. The minimum size of a copy is $1 so you should make sure you have sufficient funds in your account to be sure to copy all the trades by the trader you are copying. You can also use the Copy Portfolio feature, which allows you to diversify your investment portfolio.

Unlike other platforms, account creation on this platform is not time-consuming. It takes only a few minutes to create an account on eToro. Once you have done creating your trading account, you are then required to fund it to start your trading journey. For the convenience of its trader’s, it accepts various payment methods for making a deposit such as Debit/Credit Card, Bank Account, e-Wallet e.t.c. The platform also offers a mobile application for the convenience of its customers.

What are Copy Portfolios? 

Copy Portfolios is an incredible feature that takes Copy Trading to the next level. It helps traders to diversify Portfolios, minimize long-term risk, and to take advantage of current market opportunities. In Copy Portfolio investment, each portfolio is periodically re-balanced so that its users can get the most out of the thematic trading strategy. To use this amazing feature, you first need to create a trading account on eToro’s official website. The minimum initial investment amount required to use this amazing feature is $2000, which further reduces to $1000 for ongoing trades. 

Pros 

  • Beginner-friendly
  • Allow you to buy stocks without paying any Commission
  • Allow you to trade CFDs in the form of stock,
  • Regulated by the FCA
  • Offers 150+ ETFs
  • Offers a variety of payment methods
  • Offers Copy Portfolio

Cons 

  • Not suitable for advanced traders

Fineco Bank

Fineco bank trading platform- investment for retirement in the UK

The next online broker platform on our list is Fineco Bank. This online broker is FCA regulated and is partnered with FSCS to safeguard the funds of its investors. This platform gives you access to various asset classes, thousands of international stocks, dozens of exchanges and markets and a variety of value investment shares. The only drawback to Fineco Bank is that it doesn’t support cryptocurrencies or Copy Trading tools. It offers low investments and requires a small annual fee of 0.25% of your total account value. This small fee applies to each global exchange you invest in. One of the most beneficial things about investing with Fineco is that it gives you access to a set of portfolio management tools. These tools can help you to understand whether you are overexposed to a single industry or not. It also allows you to diversify your value stocks portfolio.

Pros

  • Regulated by the FCA
  • Allow access to thousands of UK and international shares 
  • Allow depositing with UK bank account 
  • Beginner-friendly 
  • Offers great research and educational department 
  • Charges a small amount, £2.95 per trade when buying and selling shares. 

Cons 

  • Charges 0.25% annual fee

How to buy assets-  investment for retirement in the UK

Buying investment is a simple procedure if you know where to go. Here, we are taking eToro Copy Portfolio as an example to make you understand the buying procedure. We highly recommend eToro because this platform has all that we all look for while investing.

Below are the steps that you are required to follow to buy your preferred asset for making an investment for retirement in the UK.

Step 1: Open an account

The very first step to investing with the Copy Portfolio feature is to create a trading account on eToro. To do so you are required to register yourself by filling in a registration form that is available on its official website. In this registration form, you will be required to enter a few of your details such as your name, email, phone number, and you are also required to set a strong password for your trading account. After filling in all the required fields, you are then required to accept the terms and conditions to move to the next step. 

etoro step1-create an account

eToro will ask you to verify your identity by uploading some of your documents, don’t worry as your documents are truly safe on this platform. However, you don’t need to undergo verification until you deposit more than $2,250 or you request a withdrawal.

Step 2: Fund your account

Now that you successfully registered on the platform, you are then required to fund your trading account to start making more money by depositing the required money. The minimum amount required on this platform is $50.This funding amount isn’t the fee of the robot but the working capital that is needed by the traders to execute trades. eToro offers several payment methods for the convenience of its traders, you can choose whatever method you feel more comfortable with. The payment methods supported by eToro are Debit/Credit Card, PayPal, Skrill, Nettler, and Bank Transfer. 

Since we are learning to invest for monthly income with a Copy Portfolio, keep in mind then the initial investment is $2,000. However, this is the guaranteed amount that is to ensure there are sufficient funds to replicate all the holdings of the Copy Portfolio funds.

When it comes to multiplying your money there are four metrics that you should consider. These metrics are mentioned below 

  • Reinvesting Dividends 
  • Compounding investment
  • Pound cost average 
  • Tax planning 

Reinvest Dividends

Reinvesting Dividends help you in doubling or tripling your gains.

  • Distribution

Well, it is up to you whether you wanna distribute your earned payments further or not. That is, when you collect payment that you have made by investing, you can either reinvest it to make more or can withdraw it as a monthly income. To reinvest, all you have to do is to buy more shares in that company using the cash you have earned.

  • ETFs

When buying ETFs, dividends are collected by the fund manager which is gathered up for you by your brokerage. It is then your choice whether you want to reinvest your dividends or not. 

  • Mutual Funds

In the case of mutual funds, dividends usually come in two share classes: accumulation and Income. If you want your income to automatically reinvest you can choose the accumulation and if you want the dividend to be paid directly to you, then choose income.

Compounding Investing

Compound interest is the reinvesting of earned interest back into the initial investment amount. Basically, it can help you grow money exponentially as you reinvest interest on the top of interest.

For example, suppose you have invested $10,000 and decided to hold it and reinvest for thirty years, and the investment earned 7% per year that means you would earn $76,123 at the end of 30 years. Time plays a crucial role while compounding.

Compounding over a long period of time can potentially lead to significant growth of an investment.

How to use pound cost averaging? 

Investing world is highly risky, that if you invest all you have in one go you could end up losing more or all you have invested faster rather than growing it. This is where cost pound averaging saves investors though it doesn’t fully save you from the risk of losing money it sure smoothes out the ups and downs in the market. As it allows investors to invest the amount over a period of time so that investors end up buying more shares when the price is low and fewer shares when the price is high. 

Tax planning

Taking advantage of the various tax wrappers from the government can take your returns to the next level.

The first tax wrapper on our list is Self Invested Personal Pension (SIPP). You can enjoy tax-free gains if you hold your investments in SIPP. However, there are a few rules on when and how much money you can access before your retirement age. 

Another tax wrapper we have on our list is Individual Savings Account. For an ISA, every UK taxpayer receives a tax-free allowance of £20,000. And, all the gains on investments that are held within it are tax-free. However, the drawback to it is you can’t carry over your allowance to the next level, you can either use it or lose it.

Fineco Bank offers an ISA account. 

Step 4: Invest monthly

In an eToro Copy Portfolio, $2000 is the minimum initial investment required which reduces to $1000 a month for ongoing additional amounts. Here we are taking dividend growth as an example to understand this process. 

Simply, go on click on ‘invest in Copy Portfolios’. After clicking scroll down to the ‘Market Portfolio’ section and push click on ‘view all’. Then a list will appear from which select Dividend Growth and select the same as one word ‘Dividend Growth’ in the search box on the top.

Now you are simply required to pay $1000 at the end of each month. To do so you have to click on the blue button ‘add fund’ on your copy portfolio page. Similarly, go to your portfolio page and click on the cog icon which is in the right of the Dividend Growth Copy Portfolio fund and there selects ‘increase investment’

Now, enter the amount that is $1000, opt to copy all open trades and then click update.

Conclusion

From all the depth in research, we have concluded that the best approach is to take a long-term investment for investing in retirement in the UK. All the above-mentioned investments are the best assets in the UK. You should also have an idea of how much you need when you retire, on the basis of your requirements you can choose the best investment for retirement in the UK you. And, the best broker to help you is eToro as it charges no commission and offers every investment asset that we have mentioned above. Also, make sure to use its Copy Portfolio feature for passive income. Using ETFs and Real Estate Investment Trusts can help you to diversify your investment portfolio and to gain more from the yields they provide.

FAQs

  1. How can I start investing for retirement in the UK? 

To start investing for Retirement in the UK, all you need to do is to choose an investment, sign up to a broker, fund your trading account and then Invest monthly. To have more in the future, you should start investing as early as possible and invest as often as possible. 

  1. Is real estate a good investment for retirement in the UK? 

Yes, it is one of the good investment options when investing for retirement in the UK. And, the best way to approach real estate investment is through a property fund such as REIT. 

  1. Which sort of bonds should I invest in for monthly income? 

As long as you are investing in government bonds with a strong economy and stable governance you are good to go. You may also consider investing in corporate bonds. These bonds have a fixed yield attached to them. For example, if you choose a bond that pays a 10 per cent annual return, then with investing £1000, you will receive an interest payment of £100 per year. Another option is Vanguard Total Bond Market ETF (BND), investing in this puts off the burden from you as someone else does due diligence on your behalf.

  1. What is considered a good dividend yield for a stock? 

As long as the company is paying a dividend of 2% to 6%, it is considered a good dividend yielding company but when the company pays a dividend of 8% or more than that, then it means either the company is not reinvesting profits or it is borrowing or selling assets in order to maintain the dividend.