These are testing times due to the current economic uncertainty. A lot of the advice our Advisers have given, with the drop in the market at the start of the pandemic, still applies to this situation; here is an excerpt from an email from our director and financial advisor Clive Corbett, sent to a pension client of ours at the beginning of the pandemic …
“Yes, it’s a fact that the world equity markets have fallen sharply over the last month in the wake of Coronavirus (further impacted upon by the oil price war between Saudi Arabia & Russia), which brings uncertainties to almost every sector of investment. That’s what happens when investing in the equity market, it can be a volatile, bumpy ride at times .. but we have seen all this before (the Technology crash in 2000, the Banking Crisis in 2008), only to see the markets recover & to rise to their highest level (before this current issue). Since 1950, 7 of the 11 stock market drops have fully recovered in less than a year, 4 took longer – but they always recover.
Remember, you still have exactly the same number of units in your Pension that you’ve always had, it’s just that the price of each unit has come down as a result of what’s happening at the moment. What you don’t do (unless forced by circumstances) is to sell your units when their price is low .. you wait for their price to recover, something that it has never not done – that is the golden rule. You will only see a loss if you sell out (switch to cash or deposits) before the unit price recovers.
Another thing to consider (when watching those headlines), is that as they inform you that the ‘Stock Market’ has suffered a fall in value – your Pension is not completely held in Equities, on the Stock Market. When we set up your Pension, we did so according to your ‘attitude to risk’ & your funds are held in our MPS 4 portfolio, which is roughly split; 60% equities & 40% Cash (deposit, fixed interest, bonds & Gilts) – so only 60% of your fund is actually affected by Global Stock Markets.
So, the advice is to keep to the minimum income or withdrawals that you can manage to, as this will speed up your recovery (selling less when the price is low). If you drawdown a regular income from your Pension, firstly, consider if you really do need this amount or if you could manage on a smaller amount over the short term. Remember you are only going to realise a loss on the small amount that you actually take out of your fund at the time when the unit price is low – the whole rest of your fund will remain invested & able to recover.
Hold your nerve – Equity-based investments should always be considered medium to long-term investments & they will recover.”
The markets had fully recovered by the Autumn of 2020 following the pandemic – which was very quick .. it may not always be that quick, but it has never ‘not recovered’.
Many people may be wondering if it’s a good idea to change their risk portfolio now and reduce any equity content due to the uncertainty in the markets. The advice given by one of our Advisers is that by doing this, you will effectively crystallise the price when you sell those units and therefore, lockout the ability for your portfolio to recover as quickly. You should only really consider doing this if you personally are unhappy with the risk that the market could drop further, and you are not comfortable with this prospect but can accept the losses that you have had thus far (if that makes sense).
The most important thing is to ‘remain invested’ as who knows when the market will turn and how quickly?
So, for now, sit tight as whilst markets are currently quite difficult, it is a small blip in the long-term returns.
