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No savings at 40? Here’s what I’d do

Christopher Ruane
·3-min read
Woman looking at a jar of pennies
Woman looking at a jar of pennies

While most people understand the importance of saving, a lot of us don’t manage to do it. As the years go by and one starts to think about what to do when working life ends, that can cause some worry. But at any age it’s still possible to start building for the long term, even with no savings. Here’s how I would start investing at 40 in UK shares.

I’d pick certain types of UK shares

With an eye on the future, 40 is not an age when I would plough into highly speculative investments. Instead, I would focus on a mix of investments I regarded as low- or medium-risk. When it came to choosing shares, that would mean that while I would hope for share price growth, I would prioritise security over high growth rates.

That is why I would first think about industries that I expect to be around for the rest of my lifetime. For example, insurance has been around for centuries and I don’t see it going anywhere soon. Similarly, food production is an industry that may change or consolidate, but which will likely be with us forever.

Once I had zoomed in on some such sectors, I would then start to look for individual UK shares within each sector. Again, with a focus on survivorship, I would prioritise companies that look likely to prosper for decades hence. While past performance isn’t predictive of future performance, I do have a bias for companies with decades- or centuries-long track record. It shows that the company has been able to survive through thick and then. Applying the lessons of long experience puts such a company in a good position no matter what happens.

For example, while I think Sabre Insurance is a well-run company, it is also only a few decades old. By contrast, fellow insurer Legal & General traces its roots back almost two centuries. That would make it more attractive to me if I was starting to invest with no savings at 40.

Diversification is a key investing strategy

People talk about not putting all their eggs in one basket. But when it comes to investment a lot of people ignore their own advice. They concentrate their investments in a small group of assets, whether it’s a family home, or a favourite share they expect to soar.

The danger I see in that is that if one investment performs poorly, it will affect the overall portfolio. A more carefully constructed portfolio of UK shares would contain a selection of diversified stock picks. That way, if one of them performed poorly or even folded, the overall portfolio wouldn’t be hit as hard. With no savings, I think this principle becomes even more important. I would focus on diversification from the start. This can mean investing in different shares. But it could also be as simple as ‘buying the market’. That means investing in a tracker fund that invests in the broad market, at a low fee. With only a small amount to invest, that allows for an effective form of diversification.

The post No savings at 40? Here’s what I’d do appeared first on The Motley Fool UK.

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christopherruane owns shares of Legal & General Group. 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.

Motley Fool UK 2021