Here's how you can avoid living on a State Pension of just £23 a day

Couple relaxing on a beach in front of a sunset
Couple relaxing on a beach in front of a sunset

Last week, I wrote that unless you start saving for retirement, you will live on a state pension of just £8,546 a year. I then suggested three things you need to do to escape that grisly fate: start saving, learn to invest, stick with it. Worth a read, but also a little basic, because I did not suggest what you should be investing in.

Keep it simple

If you take out an ultra-flexible self-invested personal pension (SIPP) or a tax-free individual savings account (ISA) allowance, you have a world of choice. Too much choice, if you are a newbie investor. With thousands of stocks and funds to choose from, it can be hard to know where to start.

If this sounds like you, the simplest option is to put all of your contributions into a single globally diversified investment fund, giving you a one-stop shop retirement portfolio. My personal choice would be the Scottish Mortgage Investment Trust(LSE: SMT), which aims to achieve a greater return than the FTSE All World Index over a five-year rolling period.

In stocks we trust

This £8bn fund has certainly done that, returning 238% over the past five years, according to It has a longstanding pedigree, having been launched in 1909, and I have sung its praises before. It also has a rock bottom ongoing charges figure (OCF) of just 0.37% a year. The lower your charges, the more growth you get to keep for yourself rather than hand to the fund manager.

Even the best funds can underperform so you could balance this with another global offering with a great pedigree, launched in 1929: Monks Investment Trust(LSE: MNKS). This £1.8bn trust is up 143% over five years, and has a low OCF of 0.52%. The Foreign & Colonial Investment Trust(LSE: FRCL) is another to consider.

Stay on track

Alternatively, you could build a portfolio of low-cost exchange traded funds (ETFs), passive index trackers that can be bought and sold like shares. You could start with the iShares FTSE 100 ETF (LSE: CUKX), which tracks the UK benchmark index of blue-chip stocks, and pair it with the iShares FTSE 250 (FTSE: MIDD) for exposure to faster growing medium-sized companies.

Then you could balance those two with a US ETF such as the Vanguard S&P 500 ETF(LSE: VUSA) which has an OCF of just 0.07%, and the Vanguard Emerging Markets ETF (LSE: VFEM).

I'll stop there. I do not want this to get confusing. I have recommended stock market funds because, over the longer run (and retirement saving is all about the long-term), they should deliver a vastly superior return to cash. As you get more confident, you could build a portfolio of stocks and shares.

Give it time

Once you have bought your funds, resist the temptation to tinker. Check they are performing well, keep topping them up, but do not sell if markets dip. You need to give compound growth time to work its magic.

Alternatively you could do nothing, and hope the state pension will see you through. Unfortunately, this means living on just £23 a day. Fancy that?

Buy-And-Hold Investing

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harvey holds the iShares FTSE 100 ETF but has no other position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.