Preface

‘An investment in knowledge pays the best interest.’

Benjamin Franklin

Why did I write this book?

One of the biggest risks many of us face in modern society is running out of money after retirement. This might be nothing less than a personal tragedy. People may work their entire life, accumulating wealth for a comfortable retirement, just to discover it is insufficient. And they realise it when it is too late to do anything about it. Minimising this risk is this book’s foremost objective.

The meeting of a long-term trend and a recent development in the UK was my motivation for writing this book. The long-term trend is the diminishing defined benefit (DB or final salary) pensions and growing defined contribution (DC or money purchase) pensions. The scales are shifting. For the first time, the number of members in DC schemes surpassed that in DB schemes in the UK. Consequently, most long-term savers must assume responsibility for saving for their retirement.

The saying, ‘If I am not for myself, then who will be for me?’ reflects the current pension situation. If you do not take care of yourself, nobody will do it for you. It is up to you now. You are responsible.

The recent development in the UK was pension freedom day in April 2015. Savers are no longer obliged to buy an annuity when retiring; they have freedom to do as they see fit with their savings. With freedom comes responsibility.

It is your choice to buy a Ferrari with your savings when retiring. Nobody will stop you. But will you have enough assets left to support you for the rest of your life?

In the current low-yield world, cash deposits and bonds are inadequate to generate sufficient returns to assure financial security for you and your loved ones. You must invest. You need your money to work hard, making more money. Putting your money under a mattress is not enough.

This book fills a gap. Many savers in the UK lack professional advice and understanding of saving and investing – the two activities you must diligently do. This book aims to help.

Another, more privileged group of savers does have access to professional advice. But this group’s members do not have time or resources to learn about saving and investing to challenge the advice.

Saving for retirement is too important to leave unchallenged. This book offers the tools to comprehend the advice. It does so in a concise, non-technical and simple way.

I have summarised in this book everything I wished I knew on saving and investing 15 years ago. It aims to cover all you need to know about saving and investing, but did not know which questions to ask and how to find the answers.

Why should you read this book?

Typically, if you are employed, your employer and, perhaps, you contribute regularly into a pension. If self-employed, you need to make your own pension arrangements.

If you are a member of a DC pension, you need to choose how to invest your contributions. This can be a demanding, even daunting task. However, whether you like it or not, financial security post-retirement might depend on the amount you have managed to save during your working life.

You may be actively managing your pension or oblivious to how it is invested. If the former, you are probably interested in investing. If the latter, you should start taking interest in investing. The reason is simple: without growing your savings through appropriate investing, you are unlikely to achieve your financial goals.

Some savers could not care less about their pension. Whenever a letter or an email concerning their pension arrives, they do not even bother opening it. This is especially true for young people. When you are young, retirement is such a distant affair. When you are 25, the age of 65 seems like a million years away. But it arrives sooner than expected. And, when it arrives, you had better be prepared.

Not having sufficient money in your pension pot when retiring might be a grievous problem. That is, unless you have a time machine to go back and start saving early. Who knows, perhaps by the time we retire that would be possible. But, until then, we need to save.

If you do not mind surviving cold winters without heating or buying value ranges in supermarkets, budgeting every penny you spend, then do not worry about saving for retirement. If I have succeeded in frightening you, I have accomplished my first mission: generating a sense of urgency about saving for retirement. To enjoy comfortable golden years, read on. It is probably not too late.

This book guides you on what you really need know about saving and investing for your pension. It covers the essential information to make informed saving and investment decisions.

My aim is to keep it as simple as possible. It is intended for non-investment professionals. I tried to source all the information from free internet websites for easy access. Whenever jargon is used, it is explained to build your vocabulary, allowing you to grasp the cryptic professional mumbo-jumbo.

The book includes numerous notes, covering sources, calculations and adding extra curriculum material, for those who are interested. Skip them and the technical stuff, if you want.

If I convince you to take action, start saving as early as possible and help you to make some good decisions, one day you will be glad to have read this book.

Planning for your financial future is a paramount assignment. I cannot stress it enough. I recommend you take professional advice; this book is not replacing it. Do-it-yourself books are not the answer for everything. When you are sick, you go and see a doctor. Generally, you do not read a book or Wikipedia or try to treat yourself.

Nevertheless, no doctor knows better than you how you feel. Similarly, this book should equip you with the basic knowledge about saving and investing.

Finally, this book’s goal is not to show you how to get rich from investing. This rarely happens in real life. I would take books claiming to hold the secret for finding riches through DIY investing with a big pinch of salt.

The aim here is to save and invest prudently towards genuine financial goals following a structured and disciplined investment process. The ambition is teaching you to do it like a pro. We will try to make some extra money along the way. But that is not the top priority. It requires skill and luck. ‘An ounce of luck is worth more than a stone of wisdom.’

Good luck!