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Like many investors, I have a Self-Invested Personal Pension (SIPP). It’s a great way to gain additional oversight of my finances as I, very slowly, move towards retirement. For some people, it’s an additional pot of money to complement a workplace pension. For others, it’s a place to consolidate all pensions.
So when is the best time to start a SIPP? Well, the rather obvious answer is as soon as possible. Someone starting work today at the age of, say, 21 may need around £2.5m in their pension pot at 68 to enjoy a comfortable retirement — that’s accounting for inflation.
That might sound like a challenge, but it’s the equivalent of saving towards a £760,000 pension pot for retirement today. So what’s the value of a SIPP here? Well, by starting one, in addition to the workplace pension, a Briton can bring forward their retirement age significantly.
In fact, by putting aside £200 a month, including the tax relief, an investment — be it in a SIPP or any other investment vehicle — could reach £698,000 in 40 years (or by the age of 61 when using our example above), assuming an 8% return. This could contribute to an earlier retirement.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
An even better time to start
While it’s great to start a SIPP at the age of 21, or whenever you’re starting work, it’s even better if a parent or family member can open a SIPP for a child at birth. Contributions are capped at £2,880 a year or £3,600 when accounting for tax relief.
Of course, the benefit here is time. Using the same example as above (£200 a month including tax relief and an 8% annualised return), a SIPP started at birth could reach £3.6m by the age of 60.
Where to invest for the long term?
Not all of my investments are forever. Lots of them I’ll hold until they reach a valuation I consider fair, or even overvalued, and then sell. But what about about longer-term investments?
Well, one of them is Scottish Mortgage Investment Trust (LSE:SMT). It’s an investment trust I believe everyone should consider. It’s more volatile than some of its peers, but it also offers plenty of long-term potential.
The trust typically invests in disruptive technologies with companies such as SpaceX, Nvidia and MercadoLibre among the largest holdings. As a market follower will be aware, these companies (the listed ones at least) are typically more volatile than your average FTSE 100 stock, but recent performances ha been outstanding.
And while past performance is not indicative of what will happen next, the trust’s managers have an impressive reputation for picking the next big winners before most of us have even heard of them.
One risk is leverage (borrowing to invest). This amplifies gains, but it also amplifies losses when things go into reverse. But no investment is perfect. This is one I like for the long run and think is worth considering.
