Investing in uncertain times

Lauren Morton | 23/03/2020



In the context of the events of the last week, in this blog post we talk to Michelle Gribbin, our Chief Investment Officer about what this all means for our finances.

We all have a lot of things to prepare for and potentially worry about during this Coronavirus outbreak. Should my pension be one of them?

“The impact of COVID-19, or the Coronavirus is touching every part of our lives; whether it’s caring responsibilities, rearranging large events or worrying about our finances. Firstly, I want to send my best wishes to everyone who has been affected or who is worrying about their loved ones. It’s important to keep up to speed with the latest Government advice.

When it comes to your pension there are a few things to consider. The stock market has taken a significant hit as a result of the Coronavirus outbreak so it’s understandable to worry about your finances. However, long-term investments like pensions see the ups and downs of the stock market smoothed out over time. So that’s good news.

Secondly though, are you already on top of your pension and how it’s invested? If not, the sooner the better. A well managed pension with an investment strategy that suits your needs is one of the ways to protect yourself from events such as this.”

What has the stock market got to do with me?

Many people are detached from the markets because we do not consider ourselves to be investors. This is not the case, as any savings you have in a defined contribution pension will often be invested in equities. That’s why you may have read in the press that pensions are one of the areas impacting the most people. As much as £600bn is held in defined contribution pensions at the moment*.

Be careful not to ‘panic-sell’ is advised across a number of financial experts and media. An article from the BBC explains: “So big rises or falls can affect your pension, but the advice is to remember that pension savings, like any investments, are usually a long-term bet.”*

What has caused the stock market turndown?

“The spread of the Coronavirus across the globe has led to governments taking much needed action to reduce travel and large events. This hits business across a number of sectors and creates a huge dent in economic confidence. A clear example is the travel industry as consumers cancel holidays and hold off from making future plans. This is coupled with a price war on oil, which would have taken a toll even during the best of times. The markets follow with a clear downturn.”

Is all of my pension affected?

“Most pension schemes tend to have at least 60% of their funds invested in stock market, with the remainder invested in other assets, such as bonds, property and cash. Only those who have final salary schemes, usually those who work in the public sector, won’t be affected by recent falls, as their payments are guaranteed. That’s why it’s important to get to know your pension and how it’s invested. The degree to which your pension pot is held in equities will show you the level of exposure you have to the ups and downs of the stock market.

How and where your money is invested should be determined by your attitude to risk which depends on a few factors including your ‘investment horizon’ (how far off retirement age you are) and your wider financial situation. It’s important to get accurate information and to seek impartial advice to understand whether what you’ve got meets your needs. Over half of the people we speak to have pensions that don’t suit their personal risk level**, so this is something that we review for all of our customers.”

What's the best way to protect my savings?

“On a macro level, global banks are taking action where they can. The new governor of the Bank of England, Andrew Bailey, has pledged to take "prompt action again" when necessary to ease the effects of the damage to the economy.****

It will take time to see an economic recovery, but evidence from previous outbreaks (such as SARS and Swine Flu) are encouraging.

On an individual level, you can take positive action to understand how your pension is invested and make sure that you have an investment strategy that you’re comfortable with. That means:

  1. Check on the performance of your pension

  2. Make sure you’re invested in the right way depending on how much risk you’re willing to take

  3. Check your fees and charges. On average we find that our customers are paying three times more than they need to in provider fees.***

  4. Make sure you have flexible access to your pot - once you reach age 55 a modern pension would enable you to dip into your money if and when you need it, whilst leaving the rest invested to benefit from the expected economic recovery.

  5. Consolidate. Bringing multiple pots together makes it easier for you to keep track of your money

All of that may sound difficult, but if you sign up to Profile Pensions we can find out all of this information for you.”

We hope this information is useful. Remember, signing up to Profile Pensions only takes 5 minutes. There are no fees for our investigations, or for the information and advice we share with you about your pensions.

  • BBC News Online ‘Why should I care if share prices fall? 16/03/2020

** Based on 2,817 pension reviews completed between January 2019 - July 2019 *** BBC News Online ‘New Bank of England boss pledges prompt action’ 16/03/2020 **** Average annual pension charge of 2,428 pensions we reviewed between January 2019 - June 2019 vs Profile Pensions typical recommended pension as of 16/07/2019

Capital at risk. This does not constitute personal advice. Past performance is not a guide to future performance.

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