Bonds Advice

What to do with £10k: the ultimate plan for a 60-year-old investor  


This is the fifth in our six-part series looking at how to invest £10,000 at different ages. Previously we looked at 20-year-old,30-year-old, 40-year old, 50-year-old and 70-year old investors.

In our 60s most of us will either be in or closing in on retirement and hopefully have a healthy pension, have seen their children through their teenage years and even helped them onto the property ladder.

However, many of us underestimate how much we will actually need to live a comfortable retirement.

According to Mark Williams of financial planning firm Octopus Wealth, around half of the population think they’ll need a pension pot of £100,000, while the recommended average is between £260,000–£445,000.

Investing £10,000 via your pension, assuming you haven’t already withdrawn money from it, is the most efficient due to tax advantages.

Basic-rate taxpayers that invest via a pension will receive 20pc tax relief from the government. Due to the way this is calculated, £10,000 equates to £12,500 being invested into your pension. For higher-rate taxpayers, they would get 40pc tax relief.

However, in this decade you may already be retired and have both short and long-term goals. Below Telegraph Money has explored a range of scenarios and given fund options to fit well with each.

As a reminder, while we have chosen £10,000 as a starting point, the thought process should remain the same regardless of the amount you are investing. For this guide, we have assumed there is no high-cost debt to be paid off, which should be prioritised, and that there are emergency cash savings elsewhere.

Topping up income

Using your £10,000 to invest in an income-focused portfolio can help the increasing number of us who work part-time in the build up to retirement, or are funding an income shortfall before the state pension kicks in.

Rebecca O’Keeffe, of broker Interactive Investor, said: “It is important to select income funds carefully, and if you are investing in individual shares, try to select companies whose dividends are sustainable. Simply selecting the highest yielding stocks can be a very risky strategy.”

She suggested the City of London Investment Trust as one option. The fund looks to preserve capital while investing in British companies, and has raised its own dividend every year for over 50 years.

Run by Job Curtis, when yield is hard to find the £1.7bn trust’s 5.9pc dividend yield is attractive. It is also one of the cheapest investment trusts available with ongoing charges of 0.39pc and is actively in the process of cutting its fee further.

Trusts are better for income given the vast cuts to dividends seen in the market this year. Investment trusts, unlike funds and ETFs, can hold reserves and maintain their own dividends even when the stocks they invest in cut theirs.

For more income fund ideas, Telegraph Money has put together a list of our top 10 favourites here.

I’ve worked hard and don’t want to lose it

Tom Becket of wealth firm Psgima, said on the approach to retirement, the most important thing is making sure the value of your money doesn’t fall, which could happen if invested in stocks and shares.

“Investors in their 60s and either in or approaching retirement should have a decent proportion of their assets in bonds," he said. So for those looking to add this £10,000 pot to their pension, he suggested at least 50pc should be put into bonds.

Passive bond tracker funds have become increasingly popular among investors, but Mr Becket said people should employ an active fund manager to find the few bonds worth purchasing, given most are very expensive.

He recommended the Allianz Strategic Bond fund, which has a good record of finding strong returns and yields from typically low-yielding and low-risk government bonds.

Managed by Mike Riddell and Kacper Brzezniak, the £2bn fund is 50pc invested in highly-rated corporate bonds, with the remainder in safer government bonds and cash.

It yields 1.8pc, which, while not high by historical standards, is a reasonable amount in the current market and more than can be achieved in a savings account.

For those looking to make a higher return, American high-yield companies can yield as much as 8pc, although there is significantly more risk than with government bonds and only a small allocation is suitable.

For more defensive fund ideas, Telegraph Money has put together a list of our top 10 favourites here.

You’ve still got more than 30 years to live

It is important to remember that 60 is not old. Many of us will still work well into our 60s and so it may not be suitable to pile into income or capital preservation funds just because of age. More aggressive growth strategy may be appropriate.

Whether as a balance to the 50pc bonds investment recommended by Mr Becket, or just for more aggressive investors, the £1.8bn T. Rowe Price Global Focused Growth Equity fund is a good pick.

It invests in companies across the world that can generate a lot of cash. Unusually for global funds, it also invests in the emerging markets, alongside the developed world. Other growth funds ideas are available here.

Ill health

Of course, with £10,000 it might be worth thinking about things you can’t plan for. If you have a history of poor health it might be worth using the money as a contingency plan. In this scenario,  capital preservation is of paramount importance.

Adrian Lowock of broker Willis Owen said he does not believe bonds pay investors enough. He recommended funds that invest in low-risk stocks as a better way manage risk, but not over-pay for poor yield. Splitting money across several different funds would also be prudent.

He suggested Trojan Income and Newton Real Return, which both invest in British stocks, while Fidelity Global Dividend could also be added for global diversification.

Turning a holiday into an around the world-trip

If you have a healthy pension to live on, the £10,000 might be used for something different. Perhaps it is for the dream extension, or to turn a holiday into an around the world trip.

Mr Lowcock said: “The key is knowing how much you need and by when and how important it is to achieve the goal. You basically need to invest accordingly.” 

If you are happy to risk your dream, i.e equally as content with a low-budget holiday than an expensive one, funds that invest in high-growth companies might make sense.

Merian UK Mid Cap is Mr Lowcock’s choice. The fund, managed by Richards Watts invests in companies that are in the FTSE 250 index, referred to as “mid-caps”.

Reader Service: Try our Pension Advice Service today and get a free recommendation on whether we can improve your pensions. Capital at risk.


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