The US President’s actions over the last week haven’t exactly been calming for global stock markets, with huge falls recorded across indices from the Dow Jones to the Hang Seng and the FTSE in the UK. This instability can be deeply unsettling for savers and retirees, who may log in to their pension and see a big fall in the value of their fund. But calm at this moment, when those in the highest offices appear to be losing theirs, is the order of the day. Investing is a long-term game and there are few life goals better suited to taking a long view than saving for retirement.
It is primarily people with defined contribution (DC) pensions that are invested in the stock market that will see a direct hit on the value of their fund when those markets hit the skids. Members of defined benefit (DB) schemes are largely shielded from such events, provided the employer standing behind their pension promise remains in business.
For younger DC savers who aren’t planning to access their retirement pot for decades, the events of a few days driven by Trump shouldn’t knock off course a retirement plan which, in all likelihood, will long outlast the 47th President.
If you are approaching retirement, the key is to review your investments to make sure they are still aligned with how you plan to take an income from your pot. Provided this is the case and you remain comfortable with the make-up of your portfolio, there should be no need to panic or fundamentally shift approach.
For those taking a flexible retirement income through drawdown, the same message applies – give your investments a once over to make sure you’re still absolutely comfortable with the risks you are taking now you’ve been tested with a period of volatility but, provided you are and you are able to continue taking a long-term approach, you shouldn’t need to alter course.
How things can go wrong…
During periods of turmoil like we’re seeing at the moment, problems tend to surface when it comes to pensions when people are invested in a way that doesn’t match their end goals, risk appetite or time horizon.
This was at the heart of the issue created by the Truss-Kwarteng mini-Budget, when people had been ‘lifestyled’ towards annuity purchase, with their pension investments shifting automatically to bonds as their chosen retirement date approached. That shift towards bonds was designed to hedge against annuity rate movements, which is fine as long as you’re planning to buy an annuity but less good during a bond sell-off when you’re now planning to stay invested and take a flexible income through drawdown.
If market movements over the course of a week completely knock your retirement plans off course, it means you were almost certainly investing in a way that didn’t match your risk appetite or time horizon, or both. But provided you are comfortable with your investment strategy and remain focused on the long-term, there should be no need for you to react at all.
In fact, a reactionary approach risks locking in any losses you have made. For those taking a flexible income through drawdown, sustained dips in the value of your fund, particularly in the early years of retirement, may require you to review your withdrawal strategy to make sure it remains on track.
*Source: FE Fundinfo, return figures include charges
These articles are for information purposes only and are not a personal recommendation or advice. Past performance is not a guide to future performance and some investments need to be held for the long term. Forecasts aren’t a reliable guide to future performance. Pension rules apply, and may change in future.
