Oct 20, 2020
Protecting Pensions Against Market Falls
Most pensions are invested into the markets and it can cause concern and worry for people when markets fall and they see their pension values falling. This can be even more troubling when it is getting closer to retirement where they want to start drawing on their pensions.
The first thing to check is the current risk level of your pension funds. Do these match your actual attitude to risk that you are comfortable with.
Also you need to consider the timeframe you have to retirement. The longer period of time you have then the more risk you can take as there is more time to even out any short term fluctuations.
The key to providing a decent level of return, whilst protecting against market falls is diversification (not putting all your eggs in one basket).
If your funds are only in one type of asset. Lets say you have a FTSE 100 tracker. This means that the pension will rise or fall depending on how that one asset/market does. In reality this means that it will either do really well in one year, or really badly!
When designing a portfolio for clients we take into account things such as:
- Attitude to risk
- Time to retirement
- Clients objectives
- Expected returns
- Other financial assets
- Other income in retirement
This helps us identify what is important and needed with the portfolio.
We will then look to spread the investment across a number of assets such as:
- Fixed Interest Securities
- Commercial Property
And even within one asset (such as equites), we will look to spread across different markets (UK, US, Europe, Japan, etc)
By doing this you have assets that where one falls, the other will rise (what is called negatively correlated). By dong this it gives a portfolio more predictable returns over the longer term and also a more predictable volatility (how much it can rise and fall). This helps match a clients objectives to achieve a more robust outcome.
If you wish to discuss you pensions and assess the risk of your funds contact us Click Here