According to research published by Barings, 3 million people in the UK are relying on their property to fund their retirement and have collectively seen £29 billion wiped off the value of their homes in the last year. Looking forwards at the lending data and combining this with the issues regarding bank lending I do not see an improvement in the next 12 months and feel this could actually get slightly worse before it gets better. This is a stark reminder that house prices do not only go in one direction. However is a pension any better? Pension funds have also lost considerable value as a result of the credit crisis, although there is some good news in the fact that the FTSE 100 has risen by over 30% since its recent low in March.
Traditional thinking states that both property values and stock market-based pension investments should rise over the long term although there will of course be periods when they lose ground. However the comparison between property and pensions as a way to save for retirement is not primarily one of investment performance. I see two fundamental problems with treating your property as your pension. The first is the gamble you are taking by investing in just one asset, the second is the difficulty of converting that asset into cash.
A house, large and expensive as it is, is still just one asset and its value therefore is subject to localised conditions. You wouldn't invest your entire pension in the shares of one company, for example Lloyds, because it carries too much risk so why do the same with your house?
As well as the risk involved in betting your retirement on just your house, there is also the practical problem of turning your house into cash. One option at retirement is downsizing. This involves selling your house and moving to a cheaper property, using the difference to fund your retirement. Aside from the fact that you may not want to leave your home to move into a reduced living space, you may face many other problems (cannot sell or tax issues such as stamp duty etc) There is always equity release However in our opinion equity release plans should only be considered as a last resort and should be treated with caution and discussed with your heirs.
If you are currently saving for retirement owning a property should not foster complacency about pension provision. A house is a great purchase if you want somewhere to live, However it is not a substitute for saving for retirement.
A prudent approach to investing for retirement, involves keeping your irons in different fires and if you are willing to take some risk in return for bigger potential returns, then you will probably be happy to invest your pension purely in investments linked to stock markets globally. However you should still not choose one single share, or even one sector. Instead you should probably choose a number of funds that themselves invest in different sectors and indeed across different countries at all times ensuring that the areas invested in meet with your own appetite for risk.
For those happy to accept a higher degree of risk, investors can consider emerging markets like India and China where there is potential for high growth, albeit with greater risk.
Please contact Gareth Simon on 01202 875900 if you would like to discuss your financial affairs.
This article is not a recommendation and you should speak to your financial adviser before purchasing any investments as shares can fall as well as rise.
To find out more about any of these stories or
Ward Goodman please contact 01202 875900
Traditional thinking states that both property values and stock market-based pension investments should rise over the long term although there will of course be periods when they lose ground. However the comparison between property and pensions as a way to save for retirement is not primarily one of investment performance. I see two fundamental problems with treating your property as your pension. The first is the gamble you are taking by investing in just one asset, the second is the difficulty of converting that asset into cash.
A house, large and expensive as it is, is still just one asset and its value therefore is subject to localised conditions. You wouldn't invest your entire pension in the shares of one company, for example Lloyds, because it carries too much risk so why do the same with your house?
As well as the risk involved in betting your retirement on just your house, there is also the practical problem of turning your house into cash. One option at retirement is downsizing. This involves selling your house and moving to a cheaper property, using the difference to fund your retirement. Aside from the fact that you may not want to leave your home to move into a reduced living space, you may face many other problems (cannot sell or tax issues such as stamp duty etc) There is always equity release However in our opinion equity release plans should only be considered as a last resort and should be treated with caution and discussed with your heirs.
If you are currently saving for retirement owning a property should not foster complacency about pension provision. A house is a great purchase if you want somewhere to live, However it is not a substitute for saving for retirement.
A prudent approach to investing for retirement, involves keeping your irons in different fires and if you are willing to take some risk in return for bigger potential returns, then you will probably be happy to invest your pension purely in investments linked to stock markets globally. However you should still not choose one single share, or even one sector. Instead you should probably choose a number of funds that themselves invest in different sectors and indeed across different countries at all times ensuring that the areas invested in meet with your own appetite for risk.
For those happy to accept a higher degree of risk, investors can consider emerging markets like India and China where there is potential for high growth, albeit with greater risk.
Please contact Gareth Simon on 01202 875900 if you would like to discuss your financial affairs.
This article is not a recommendation and you should speak to your financial adviser before purchasing any investments as shares can fall as well as rise.
To find out more about any of these stories or
Ward Goodman please contact 01202 875900
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