Stocks to Buy for Pension Investment

Buy investment pension

In the past companies invested your pension money for you and you did not know much about what stocks to buy to secure a good retirement pension. It was not a devious act on their part but your employer had access to your money for years (all of your working life, in fact). This has changed in society today. You are now given much more choice and options as to where you want your pension contributions invested (this includes monies that your employer will also have paid into the employee’s fund). This, therefore, means that you need some knowledge of what are the best shares to buy (your investment strategy) because the onus is now shifted to you by your employer.

Investment tips

Pension fund excellence

This is a simplified view of money matters but we must start somewhere otherwise it’s a complete guess when we risk our pension money. Usually you have five choices when you invest your pension and you can divide your money percentage wise between all of them or go with 100% to just one option. Firstly the highest risk is equity but it offers the highest long term return. It is suitable for workers in the early 20-30 yr old bracket. Next is a medium to high risk fund, mostly equities but safer than top option. Thirdly is a managed fund which tries to get the best of all the managed funds. The fourth option is a managed fund (locally) within one brokerage firm. The fifth and easiest investment is in cash. By investing your pension in treasury (cash but not equities or real estate) the expected return is somewhat constant at 2-3% and it is extremely unlikely that your investment will diminish in any way. Different financial institutions will have different names on these options such as ‘Manager of Managed Fund’ or ‘Investment Shares Equity Fund’ but it should be easy to work out which one is which as they are usually listed from high to low.

Investing in shares

You will read about investments that during the same time period yielded gains of 20-30% and I say good luck to those who risked their money for this substantial gain. Remember, too, that the downside is that some investments in the same time period lost 20-30% or more. If you are young these losses can be recouped by growth in equities in future years. But if your retirement coincides with poor trading condition you will have no recourse to buck the trend and recover your losses. So you can be assured that investing in cash will always yield a return even though it may be small. It is for this reason that it is recommended that your pension funds should be invested in cash during the final 5 years before your retirement. This eliminates any volatility in the market, which in the short term (5 years is short term in relation to a normal working life) could decimate your pension fund.

Tax implications

When you sell or trade shares you will be liable for tax on the profits you make. You can also offset some of your losses against your tax liability. Your pension contributions are tax free up to a certain level but you may be liable to pay a small tax when you start to draw the pension. This tax is substantially less than you would have paid on the money when it was earned. Generally speaking your pension fund cannot be withdrawn until retirement age which is 65 but can vary from country to country (earlier than normal retirement age can be due to disability or other causes). Over time, stocks and shares will outperform bonds and junk bonds should be avoided altogether. Junk bonds are not backed by a company’s assets although they usually offer a very high rate of interest. You need to know where to invest and what fund is best suited for your pension contributions rather than knowing the specific stocks to buy.