Most people have good intentions when it comes to saving for retirement, putting a little money away every month.
It's what you do with this money that can really make a difference to your retirement fortunes. Saving is just part of the puzzle. You've worked hard to earn your money, so your money should be working hard for you.
Save, then invest
The best way to get your money working is to invest. For example, over the past five decades, the FTSE 250 has generated an average annual return of between 7% and 9%. In comparison, today the highest interest rate on offer on cash savings is around 2%.
This performance gap makes a difference when you're saving for the future. £1,000 invested at 2% will grow into just £2,700 over 50 years. However, if your money is earning 9%, £1,000 will become £88,500 over the same period. In other words, a few percentage points of returns could be the difference between achieving a comfortable retirement and having a nasty shock when it's time for you to leave the workforce.
With this in mind, I have compiled a list of the five top investment funds that I believe can help you achieve the retirement you want.
There are hundreds of investment funds on the market at the moment, but I have chosen these in particular because I believe they offer the best exposure to vital global investment themes at the lowest cost. As they are mostly equity funds, they are only really suitable for investors with investment horizons of 10 years or more. A short-term bond fund might be more suitable for readers planning to retire in the next few years.
My first top fund pick is the LifeStrategy 60% Equity Fund. The last time I wrote about this at the beginning of March, I claimed that it was one of the best funds around for investors of all experiences due to its international exposure and ready-made portfolio. I continue to believe this is the case today.
Split 60/40 between equities and bonds, the LifeStrategy fund gives buyers a well-diversified portfolio at the click of a button and with charges amounting to only 0.22% per year, it is significantly cheaper to use this instrument rather than try to build a similar portfolio yourself. The fund invests in markets around the world through other tracker funds, so there's no risk that the managers will make a bad stock pick.
As the global economy continues to expand, LifeStrategy should produce sturdy returns for investors for many decades to come.
LifeStrategy should continue to do well as long as the global economy continues to grow. The one downside of the fund is that it lacks a specific focus. The Scottish Mortgage Investment Trust(LSE: SMT) on the other hand, has a heavy tech focus.
Managed by James Anderson since 2000, Scottish Mortgage's portfolio is dominated by some of the market's biggest and highest-profile tech stocks including Amazon.com as well as Chinese internet giants Tencent Holdings and Alibaba.
These companies have transformed the world over the past decade, and it is highly likely that they will continue to do so for many years to come. Technology is changing the world in ways few thought possible. It's making investors extremely wealthy along the way. I believe anyone investing for the future should have some exposure to tech stocks, but in this rapidly changing sector, paying an experienced manager like Anderson to look after your money is probably the best solution.
One of the sectors reaping the benefits from technological advances is the healthcare sector. Medical technology is improving at a faster rate than ever before, helping tens of millions of people around the world. As the world grows, the demand for medical services is only going to expand, and this is why I believe the Worldwide Healthcare Trust(LSE: WWH) is worth adding to your retirement portfolio.
This £1.4bn trust has been managed by Sven H. Borho since 1995, an experienced healthcare investor, who's investment skill has produced strong returns for investors. Worldwide Healthcare does what it says on the tin. The trust is invested around the world in healthcare stocks. From drugs sector giants such as Merck & Co to medical device manufacturers such as Boston Scientific and niche pharmaceutical companies like Edwards Lifesciences, this trust is a one-stop shop for healthcare investing.
The one downside is that it is a bit on the expensive side with an annual charge of 0.9%. That said, Worldwide's total return of 148% over the past five years, compared to the biotechnology & healthcare benchmark return of 131%, shows it may be worth paying that little bit extra to access the team's healthcare experience.
Bricks and mortar
Property is one of the most stable long-term investments. The TR Property(LSE: TRY) fund is a great way to add exposure to this asset class to your retirement portfolio.
TR Property invests in both listed real estate investment trusts and physical property. What's more, it isn't just limited to the UK. Only 43% of assets are invested in UK property. The remainder is invested throughout Europe (including borrowings, total exposure is 113.2%). The largest holding, accounting for around 10% of assets is Vonovia SE, Germany's leading nationwide residential real estate company managing 355,000 residential properties around the country.
With an annual management charge of 0.8%, TR Property will give you instant exposure to a global real estate portfolio. The dividend yield is 2.9%.
Bankers Investment Trust(LSE: BNKR) is my fifth and final pick. I've picked Bankers because it has a record of creating value for investors, with a low fee (0.45%) by investing in some of the world's largest and most innovative companies. Also, unlike most of the other funds profiled, it supports a modest dividend yield of 2.1%.
Today, the top five holdings are BP, Apple, Microsoft, American Express and British American Tobacco, a broad selection of top performing companies from around the world. There are 191 holdings in the portfolio overall.
Over the past decade, this £1.1bn fund has produced a total return for investors of 180%, smashing its benchmark return (FTSE All-Share) of 94.5% over the same period. As the trust has already been in business since 1888, I'm almost certain this would make a great addition to any long-term investment portfolio.
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Rupert Hargreaves owns shares in British American Tobacco. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.