Alice Guy reveals her investing plans for 2023 and why she's prioritising pension payments next year.
With the paper hats tidied away and the bottle bank full to bursting, we’ll hopefully get a few moments over the next few days to sit down and put our feet up.
This hushed period between Christmas and new year can be a great time to think about our plans for the year ahead and set some investing goals for 2023 and beyond.
Like many of us, I'm planning to sneak in a few quiet moments this week to take stock and look ahead to the future. I’m planning to prioritise my flagging pension pot during 2023, as well as paying into my ISA for medium-term financial needs.
Here then, are my top 10 investing goals for 2023.
1) Setting a pension target
The first step to boosting my lagging pension is working out what I already have and what I may need for retirement. This is the fiddly bit.
A good place to start is the Pension and Lifetime Savings Association Retirement Living Standards, which reveal that a couple needs an income of around £33,000 for a modest retirement and £54,000 for a comfortable retirement, assuming they have no housing costs.
That means, to achieve a comfortable retirement I need to aim for an income of around £17,000 per year from my private pension (Half of £34,000 - £54,000 minus £20,000 state pension).
ii’s income drawdown calculator shows that to achieve an income of £17,000 per year I would need a pension pot worth around £470,000. That’s assuming I want to retire at 65 years old and need my pot to last until I reach 95 years old. I’ve assumed a modest investment growth of 3% because it’s a cheat’s way to take account of inflation (5% investment growth minus 2% inflation).
2) Boosting my lagging pension
After a long career break, even though I paid in when I could, my pension pot is looking decidedly lacklustre. But hopefully I have time on my side as I’m still around 20 years away from retirement.
But I need to invest significantly more than the standard amounts set by my employer to meet my retirement target, because I had a big gap in contributions.
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As a result, I’ve decided to prioritise paying into my pension during 2023, even if it takes longer to pay off the mortgage. My thinking is that I can achieve much bigger returns from my pension contributions than I’ll spend on mortgage interest, especially once I take pension tax relief into account.
3) Regular investing
Instead of investing everything in one go, I’m planning to drip money into my pension and ISA throughout 2023.
Regular investing is a great way to smooth out the ups and downs of the stock market, investing when the market is high, low and everywhere in between.
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In some ways, investing is very simple. It’s quite possible to bumble along without a plan, investing regularly and letting compounding do the heavy lifting.
Regularly investing £200 per month in a simple tracker fund could lead to an investment pot worth £185,000 after 40 years, assuming 3% investment growth, and £305,000 assuming 5% growth.
4) Sticking to my strategy
With a recession looming in the US and closer to home, 2023 is likely to be another volatile year for the stock market. A continuing energy crisis and uncertainty around interest rates and inflation suggests difficult times will continue for investors, at least in the immediate term.
Nevertheless, I’m aiming to stick to my long-term strategy of investing 70% in a global tracker and 30% in more adventurous smaller companies and emerging market funds.
Rebalancing every year between these two main areas allows me to take advantage of relatively good value sectors, for example, selling some of my tracker and buying more smaller companies when prices are down.
This strategy has served me well over the years, as smaller companies tend to outperform larger companies in the long run, so I’ve also been able to “bank” gains as they occur.
It's worth sitting down and thinking about your own investing strategy, attitude to risk and investing time frame, as my investing strategy won't be suitable for everyone.
5) Researching adventurous plays
One area where I could do with some Christmas inspiration is my selection of smaller companies and emerging markets funds.
My current choices have done well in recent years, but it’s one area where I allow myself a bit of fun to choose some more unusual plays.
I’m hoping to take a look at some more adventurous funds this year, maybe investing in India or other unusual sectors.
I’m a big believer in spreading my investments across many geographies and sectors. That way I’m protected if one sector or company does badly in any given year.
The easiest way to do this is by investing in a global tracker fund that spreads my investments across all the major companies, geographies and sectors in the world.
It may not be particularly exciting, but it is probably one of the cheapest and simplest ways to build wealth in the long run.
7) Investing in smaller companies
Despite recent lacklustre performance, I’m still planning to keep investing in smaller companies during 2023. Smaller companies have the potential to outperform bigger companies over time as they are at the beginning of their growth cycle.
I don’t have time to spend hours researching individual companies, so I prefer to invest in smaller company investment trusts and funds. interactive investor's Super 60 list has some good ideas.
8) Maximising tax relief
Like many of us, I’ve got a nagging feeling that the generous pension tax relief system will be reduced at some point in the future, so I want to make the most of it while I can.
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Currently, basic rate taxpayers receive a 25% government top-up on pension contributions, while higher-rate taxpayers receive an amazing 67%. This means it only costs basic-rate taxpayers £100 to pay £125 into their pension and higher-rate taxpayers receive £167 for every £100 they pay into their pension.
9) Building medium-term savings
Something else I’ve been doing recently is starting to focus on medium-term savings.
With four kids at home, the costs are seemingly never-ending, and I can’t afford to bury my head in the sand any more about yet more expenses on the horizon.
Last year, I used my ISA to start investing in a capital preservation trust that’s designed for medium-term savings. So far, the fund is doing well and beating possible cash returns, but of course, this isn’t guaranteed in the future.
10) Keeping my eyes on the prize
This time of year, the experts polish off their crystal balls, make predictions and review the best and worst-performing funds of the last year.
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- How fund manager predictions fared in 2022, and what’s forecast for 2023
It’s great for new investing ideas, but it’s all too easy to be distracted by short-termism and take our eyes off the long-term prize.
Yes, it may make sense to get rid of any “dog” funds rather than hoping they improve. But it’s also important not to throw the baby out with the bath water. In times of stock market volatility, it’s especially hard to tell if past performance is a guide to the future.
There’s nothing wrong with a few tweaks, but it’s also important to stick to the investing basics: regular investing, reinvesting dividends, diversifying and sticking with our long-term investing strategy.
Happy New Year and let’s hope for a prosperous 2023!
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.