The FTSE 100 and financial markets across the World plunged on Monday 9 March 2020 on what has been dubbed “Black Monday”.
After the longest period of market growth in history, it now looks like we may be entering a period where greater volatility in the markets (the short term up and down movements in the market) becomes the new norm. If you are a member of a Defined Contribution (DC) scheme, this can have a bearing on your savings as your pension at retirement is impacted by the performance of financial markets.
It is important though to remember that whilst the impact of COVID-19 has been felt heavily within the past week, some volatility in equities (stocks and shares) is to be expected.
While it can be unnerving, it is very important to keep in mind that investing is a long-term game. If you are far away from your retirement, fluctuations in the short term are less likely to have a lasting impact on the final value of your pension pot when you reach retirement. As has been seen in the past, markets can recover, for example following the Global Financial Crisis in 2008/2009.
If you are closer to retirement, many DC pension schemes have the option to invest in less volatile assets such as high-quality bonds. Additionally, many DC pension schemes have a “lifestyling” strategy which means your pension pot gradually moves into lower risk funds as you approach retirement.
Right now, the main thing is not to panic and make any sudden decisions based on the short-term events, but rather to make informed decisions which appropriately consider your long-term retirement aims.
This communication should not be taken as advice. If you are unsure of how you wish your benefits to be invested, it is important to seek independent financial advice.
Suraj Gandecha, Associate Consultant