When piling on the pounds can improve performance
Financial Adviser Adam Sullivan looks at the importance of continued regular pension savings during uncertain times.
Unless retirement features on the near horizon, pension investors should be looking beyond current political and economic posturing such as the forthcoming US presidential election and America’s trade dispute with China. While it remains a human tragedy and hugely challenging, the same can be considered for the continuing difficulties we all face with Covid-19.
It has been a difficult year for us all individually and a tough time for the UK stock market in particular. This is why in the area of investment advice and management we constantly stress the need for thoughtful diversification within clients’ investment arrangements. We strive to ensure members’ investments remain pragmatic and relevant. Just because Sterling is our home currency and the UK our local stock market does not mean we need to be entirely invested in them.
Pension planning is no exception to this iron rule which has proved to be hugely significant this year. The yawning gap in performance between the FTSE-100 and the NASDAQ technology index bears witness to the need to diversify. Traditional sectors that we would ordinarily look to in forming dependable building blocks of investment arrangements have suffered. Industries that previously provided a degree of predictability around the provision of steady growth and dividend income have failed to deliver in 2020.
Traditional business models attuned to high levels of consumer consumption have likewise faltered, as we have all faced major disruption. Some of the former methods of doing business may never return while others have had to modify their operations, accepting that things have changed at least temporarily or perhaps even permanently.
Common investment themes such as technology and healthcare have featured more prominently. Innovative companies have attracted greater attention and investment than they may otherwise have done under different circumstances prior to 2020. We continue to benefit from these developments but remain vigilant as to the challenges ahead.
We are all adjusting and our pension arrangements and the underlying areas in which they invest are no different. The advantage pension savers have within member schemes is that they are participating in risk-rated investments and structured portfolio solutions. These are linked to the mandate that the member has set at outset along with readily available guidance and on-going advice from their partner in the form of Gower Financial Services.
Within members’ pension arrangements sit investment solutions which can and do change regularly to anticipate the evolving financial landscape and the challenges outlined above. It is pleasing to see that the varying portfolio and investment solutions employed by members have performed reasonably well and sometimes impressively so. I have included data overleaf simply to illustrate our performance through this unique period.
Over the last year I have frequently been asked by members whether it is wise to continue with their pension planning. They have also on occasion viewed the evening news and having been slightly traumatised by the experience, have again questioned whether they should be adding earnings to pension arrangements? The unequivocal answer to these questions is ‘yes’. We should continue funding pension arrangements as best we can.
The distress we have all faced individually has had a knock-on effect on asset prices, exchange rates and stock markets. However, as the chart below shows us, it has proved to be a temporary albeit brutal sell-off. Regular pension saving is a great way to harness both the risk and opportunity this presents. It is therefore more important than ever to sustain pension saving through these times.
Stock markets often surprise on the upside and the last 6 months have shown this to be the case. There is an old saying that it is not about timing the market but time spent in the market that counts. Pension plans provide an ideal platform to accumulate and compound money over the long-term while riding out the troubled times that we are passing through.
1-Year Performance of Gower Ethical & Horizon Portfolios (before fees & platform charges)
Past performance is not a guide to future returns. Please note that the value of your investments can go down as well as up and you could get back less than your original investment.
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