I’m taking a lot of risks with my pension – here’s what I’m doing with it

Bobby Segal is a former businessman – here’s how he plans to retire in 30 years

July 11, 2024 at 6:00 am(Updated 10:44 am)

The two questions I ask myself with my financial planning for retirement are “What is my attitude to risk?” and “What is my disposal capacity?”

The classic investment principle states that the higher the risk, the higher the reward. Our pensions are a tax-efficient way to put money away for later life to provide income in retirement – and the same investment principles apply.

As a new member of the 40-year-old club, I predict three decades before retirement at age 70. This time horizon means that my retirement investments can absorb the shock of losses in the short to medium term. Former Labor Prime Minister Harold Wilson said “it’s been a long week in politics”. Well, 30 years is a metaphorically biblical age for a retirement investment strategy.

Cast your mind back to 1994, 30 years ago, Tim Berners-Lee had just invented the World Wide Web and VHS tapes were all the rage. So looking 30 years from now to 2054, the only thing I can guarantee is that there will be change. So my retirement investment and savings strategy can afford to take risks (actually the patient can’t).

I consider my savings as three pots. The first step is to manage my daily expenses in my current account. Pot two is for my rainy day funds to cover unexpected financial emergencies. Last but certainly not least is the three-pot, which is for a long time. My pension here can be considered as a long term savings account.

Since I first started earning as an 18-year-old while working with accounting firm KPMG, I contributed to my triple pocket. 10 percent for my retirement and the same for the stock market (which is primarily for the long term but can dip when needed).

In my 20s, I worked in the City as a trader for investment banks Lehman Brothers and Nomura (as well as qualifying as a chartered accountant at PwC). So I am confident in understanding the nature of financial markets.

While the lack of short-term predictability can be discouraging for investors, equity—shares in companies—are better than cash in the long run. So over 30 years, I’ve been a fan of emerging markets, speculative asset classes (including crypto) and volatile stocks like Nvidia, Tesla and Apple.

While we may overestimate the short-term impact of technology and artificial intelligence in shaping our world, we truly underestimate its long-term impact. As a teacher, I know that technology holds the key to our knowledge consumption in the future, so I have been exposed to technology-based funds.

Another factor that some people think about their retirement and investments is the changing political landscape. With the Labor Party landing a landslide in the UK General Election, and how will this change my investment strategy for retirement?

As it was largely priced, there was no dramatic immediate movement in the markets. And in the long run, stock markets don’t have a significant impact on elections. However, UK stock markets should be boosted by greater political stability as attention will be drawn to the relatively attractive value of UK shares.

So how can I expose my pension investment to at least 10 years of renewal under a Labor government? Sectors like infrastructure and defense are likely to grow over time.

Labor has promised to build 1.5 million homes in the next parliament. Prime Minister Sir Keir Starmer has also said he is committed to increasing UK defense spending by 2.5 per cent if he can. I will be looking to find suitable housing and aerospace/defense companies for my portfolio.

So what if you want your retirement to benefit from the stock markets but don’t have the time or risk appetite to manage individual stocks? Tracking funds or passive/index funds follow the overall movement of the market or index.

Exposure to technology can be obtained through Fidelity Global Technology Fund and Sanlam Global Artificial Intelligence Fund. FTSE 250 funds are likely to benefit more from UK-specific growth than the globally focused FTSE 100.

Overall, I believe that taking risks with your retirement is no different than taking risks in other areas. With a longer tenure, this will give me the best chance to build the income for the retirement lifestyle I want.