Contributing to SIPP (self-investment personal pension) is a great way to build wealth for retirement. These pension accounts typically provide access to many different growth assets (e.g. stocks, funds, ETFs), tax-free investments, and tax easing.
However, the key is to start contributing early. If someone starts contributing before the age of 45, the results can be very surprising.
Please note that tax procedures depend on each client’s individual circumstances and may change in the future. The content in this article is for informational purposes only. It is not a form of tax advice or constitutes. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making investment decisions.
Starting early can lead to massive retirement savings
Let’s say you have achieved an annual return of 8% from SIPP over the long term. Also, let’s say he was giving £800 a month as a taxpayer with the basic interest rate (the government will add £200 a month if it takes the monthly total contribution to £1,000).
If you start contributing at age 50, you will have around £330,000 by age 65. Starting at 45, you’ll have £550,000.
However, if you start at 40, a whopping £870,000 will be 65. It’s obviously much more money for retirement.
What’s crazy is the difference between starting from 40 to 45. Despite spending an additional £48,000 over five years, the pot will have an additional £320,000 added by 1965.
This shows the importance of starting early. The earlier you start, the more time you will have to exploit the power of compound interest (earn returns on past returns).
Generates a solid return
Obviously, an 8% return plays a key role in these calculations, and it is never guaranteed. Many investors achieve fewer achievements. So how is someone aiming to achieve that level of profit in the long term?
Well, there are few strategies investors can consider.
One is investing in low-cost index funds. An example is: Legal & General Global Equity UCits ETF (LSE:LGGG).
This is a simple tracker fund designed to mimic the performance of the Solactive Core development market. In other words, it provides exposure to large and medium-sized businesses in developed markets.
Overall, you can access around 1,400 shares. Among the top 10 biggest holdings apple, nvidia, Microsoftand Amazon.
The fund has been extremely good over the past five years (until the end of February), returning around 14% per year. But I wouldn’t think that such a return would continue.
In the long term, these types of index products tend to return to about 7%-10% per year (assuming there is no major currency movement). Returns can be low if the economic situation is weak or if geopolitical issues scare investors.
Aiming for a higher return
Another option to consider is to put together a portfolio of individual stocks. This is a riskier approach to investing, but it can lead to top results.
Look at the generated returns Amazon In the long term, stocks (I think it’s worth considering today). Over the past decade, they have risen about 880% or 25% (on the US dollar terms) per year.
That’s a great return. However, investors had to endure sufficient volatility along the way.
It is worth pointing out that these approaches are not mutually exclusive. Personally, I like to do both.
There are passive index funds for diversification and portfolio stability. After that, they have stocks like Amazon and grow even more.