The spread of the coronavirus COVID-19 beyond China to the rest of the world has caused a significant downturn in world economies and financial markets with many stock markets recording historical falls, followed by record recovery and continued volatility.
Let us look at the importance of maintaining Pension and Savings contributions.
At the outset it is important to acknowledge the difficult and challenging times many families have experienced through temporary or permanent job loss, making Pension and Savings contributions a challenge.
Do not Panic, Keep Calm!
In times of stress people tend to make the wrong decision. People should keep calm and consider the plans they have put in place and stick with them. Investors who sell out at a time when markets are down almost always are mistaken in doing so.
The reason – markets tend to recover quickly from sharp falls and most investors who have switched or cash in their funds in haste tend to miss the upturn. If you go back to 2008, pensions funds might have fallen 20-30% in value but within a year they had regained that loss.
Most Pension and Savings plans involve the purchase of units in a chosen fund(s) with each contribution made, the lower the unit price, the more units your contributions purchase. This in turn will give you more opportunity to make a gain as unit prices rise.
If you are due to retire soon – will this reduce what I get from my pension?
If you have some Rainy Day Money invested, that you do not need in the immediate future, you are not under the same pressure. Likewise, people due to retire in five years’ time or more should have more than enough time to see their pension pot recover.
However, if you are due to retire in less than 5 years – Your financial advisor should be taking retirement age into consideration and adjusting the investment risk level of our Pension or Savings investment accordingly.
That means that pensions due to be drawn upon soon should be based around very low risk assets and investments.
What is Investment Risk
The riskiness of your Pension or Savings is measured on a scale of 1-7 set out by the European Securities and Markets Authority, with risk increasing as the number goes higher.
If people are unsure about their own Investments or Pensions, they should speak to a financial advisor to get a better understanding of how their money is allocated and what level of risk is involved.
Lessons from History
History has shown that the longer you keep your money invested, the greater the chances of a positive outcome. Staying fully invested through a market downturn has, in the past, ensured investors reap greater rewards over the long-term as rebounds after large losses are often significant.
The Importance of Low Charges
Pension and Saving Plans can carry various charges such as annual management charges, premium charges or policy fees. Lower charges mean higher returns for investors and savers. In recent years charges have become more competitive among Pension and Saving providers, however investors rarely shop around and continue to erode hard earned Pension and Saving funds with high charges. Old employer pensions or personal pension funds are often left unreviewed resulting in unnecessary charges and loss of retirement benefits at a time when stock markets falls have reduced the value of Pension and Saving funds.
It is important you do not have all your investments tied up in long term Pension and Savings plans, which may have penalties if accessed early. We advise our clients to maintain a minimum of three months net salary in a deposit account as an emergency fund that can be accessed within seven days.
If you are concerned about recent stock market falls or any of the items discussed in this article, it is a good idea to take some time with your Financial Advisor to review and refine your current investment strategy, rather than making a sudden decision.
Alternatively, to arrange a free, and no obligation financial review with one of our Qualified Financial Advisors contact us [email protected] or schedule a phone or online consultation by clicking here
CUinsured Ltd Trusted by Credit Unions in Ireland. CUinsured Ltd is regulated by the Central Bank of Ireland. Past Performance is not an indication of future performance. The value of units may fall and rise on any given day. This article is for discussions purposes only and should be read in conjunction with the relevant investment product terms and conditions.