BY JOHN ELLIS, FINANCIAL ADVISOR
According to the March Pension Fund Statistics (Q4 -2021) report published by the Central Bank total assets in the sector grew by 4% over Q4-2021 to stand at €135.5 billion. This is due to increases in pension fund reserves (€2.8 billion) and investment fund shares (€1.9 billion).
Irish pension funds hold €12.2 billion in Government bonds. The majority are held in bonds with France (€4.2 billion), Germany (€2.0 billion), Ireland (€1.6 billion) and Spain (€1.3 billion). While direct holdings of investment funds stood at €50.9 billion at end-Q4 2021. The two main investment fund types are Equity funds (32.4%) and Bond funds (31.9%). Other funds (17.6%) saw the largest growth over the quarter, increasing by €1.9 billion.
These figures show that many of us “have skin in the game” with most of us using personal pensions, company pension PRSA’s and buy out bonds as our investment vehicles.
But we rarely look under the bonnet of these plans with many using what’s called the default investment strategy, ie. leaving asset allocation to the investment managers and allowing them to de-risk our funds as we near retirement. A very valuable tool in investing but can lead to panic when things take a turn for the worse.
It’s crucial to have some understanding of what drives markets, how our money is invested and how we should act when markets take a dive especially at times like this with volatility in the financial markets unnerving some investors. This is due to the fact that we experience the pain of loss more acutely than the upside gains, and we forget we are in for “the long haul” leading to some very erratic decisions.
We have forgotten our financial history! In the last 25 years we have weathered the dot-com crash, 9/11, the global war on terror, the global financial crisis, the COVID-19 pandemic.
Since 1980 there have been nine Bear markets with a decline of 20% or more lasting for at least two months. While many of the Bear markets have been severe, the Bull market surges have been even more dramatic, with returns of up to 99% being the average total return.
So, what are we to do in this time of crises?
Stay invested! Remember investing in the stock market is a good choice for those who are looking for long-term results.
Review your attitude to risk. All investing is subject to risk, and past performance is no guarantee of future returns. If the downturn is causing you to lose sleep maybe its time to re-look at your risk appetite and tolerance.
Stay or become more diversified – have exposure to the different asset classes – while one area is down another can be up.
Rebalance your portfolio at least once a year even when the constituent parts are declining in value.
Trying to time the market is ineffectual. Since 1980 the best and worse trading days often happen close together and occur irrespective of the over all market performance for the year. Of the best 20 trading days nine occurred in years with negative total returns and of the 20 worse trading days eleven occurred in years with positive total returns.
Predicting which segment of the market – the asset classes – will do well is also an unknowable.
But what is known is that overall, investors who have held their nerve, keeping their investments during periods of high volatility and decline in investment value have seen their portfolio not only recover but their overall value increase.
Being in control matters. Being financially educated make a difference. Financial advice is paramount. Having a well-diversified portfolio leads to peace of mind and usually better returns on your investment over the long term.