Sanity check 2: Be Investment savvy

Six ‘sanity checks’ for keeping you cool, calm and collected and protecting your retirement aspirations.

We have focused on pension scams and how to spot them and protect yourself. Now let’s move onto investments and how to make savvy decisions and ultimately, help to protect your retirement vision.

Sanity check 2. Be investment savvy

Last year the ‘perfect storm’ of Covid-19 and the collapse of oil prices devastated global investment markets and slashed the value of investments, especially equities (shares in companies). Many people, panicked by dramatic media headlines, moved their investments out of shares and into cash.

But rash decisions don’t always make sense.

After the initial investment falls, many stock markets around the world started to increase again in value meaning people who had made the rash decision to move their investments into cash didn’t benefit from this upturn.

Have you seen a fall in the value of your retirement savings?

Your immediate reaction is likely to be ‘something’s wrong, I need to change my investments’, but this may not be the best plan. We can’t say what’s right for you, but here are some things to think about.

Retirement saving is a long-term exercise.
Investment fluctuations are expected, but when retirement is on the horizon it can be harder to make up losses. It’s not all bad news though –
- You may still have a few years of potential growth to benefit from.
- If you’re in your pension provider’s default investment option (or another ‘lifestyle’ or ‘retirement pathway’ investment option) that automatically switches your savings into lower risk investments as you get closer to withdrawing benefits, this may have given you some protection from market falls.
- When you start taking your benefits, you can do it in stages and keep some of your retirement savings invested for future growth (though growth can never be guaranteed).
Spreading your investments can help reduce risk.
It’s known as ‘diversification’. Having a mix of different assets, such as shares, bonds, property and cash, and spreading them around the world, can help lower your investment risk. If you’re in your pension provider’s default investment option, it’s likely to be well diversified.
Market falls aren’t all bad if you’re a regular saver.
Every month your retirement contributions buy a number of investment units. When markets fall, investment prices go down and your contributions buy more units. When the market recovers, the price of the units goes up again, increasing the value of your retirement savings. So, if you can, it is often advisable to keep contributing into your pension plan.

Important note: The above is referring to Defined Contribution pensions. If you also have some defined benefit or DB pension this won’t have been affected in the same way, because DB pensions are based on your salary and the number of years you build up the pension.

If you’re concerned about your retirement investments, why not talk to an expert?

Thanks to your employer’s partnership with Aspire to Retire you have access to our team of retirement experts as part of your employee experience. Here’s how: