In the past few weeks the Covid-19 pandemic has left all of us dealing with unexpected issues and it’s thrown up many financial planning questions for our clients too.
With that in mind I thought it would be useful to share a summary of some of the questions our advisers are being asked most often during this challenging time.
I hope the answers will be of use to you. As always, if there’s anything you’d like to discuss either on these or anything else then please get in touch - we’d be happy to help.
What impact will the stock market downturn have on my pension? Should I change my portfolio?
It’s notoriously difficult to “time” investment markets and most client portfolios will hold a diverse mix of asset classes including Global Equities, Fixed Income, Properties, Alternatives and Cash.
We believe the key is to be invested in the appropriate risk level and we always look at a client’s short-, medium- and long-term goals rather than making knee-jerk reactions to the current market volatility.
To read our full view on the pension investment impact of coronavirus, click here.
Should I switch more of my pension to cash?
By doing this, our client would be realising any losses incurred to date and they already had sufficient cash inside and outside of their pension. Markets have had similarly sharp drops in the past, but typically they recover over time so you need to be ‘in it to win it’.
Historically, investments have outperformed cash/inflation, but there will always be periods where ‘cash is king' (however please note this is not guaranteed and past performance is not necessarily a guide to the future).
Should I keep taking income from my portfolio?
If a client is holding significant Cash assets outside of their Investment portfolio it may be advisable to “turn off” any income from the investments whilst the values are low to reduce the impact on the portfolio and ensure they stand the best chance of recovery. However, this is always considered on a client by client level.
How long will it take to recover?
It’s likely markets will remain volatile for some time yet until governments around the world get a real handle on the spread of the virus and we have a true and up to date picture of the economic impact the global lockdowns have had on companies’ profits. Some companies will be in better shape than is forecast, some will be in worse shape and many will not survive and therefore diversification is the key to minimising significant losses along with ensuring a client is invested in an appropriate risk level for their long-term goals.
Is it a good time to invest?
Compared to a couple of months ago potentially yes, but remember that things could still get worse in the short-term and investments may still go down as well as up from this point. However, if you are looking to invest for the long term and can tolerate fluctuations in value it may be a good time to invest. One strategy you could adopt is to phase your investment into the market over a period of time rather than investing one lump sum. By doing this you may invest at different valuation points in the market, so it could potentially achieve a lower average price for the investments you make.
Should I buy an annuity now or wait until things have settled down? Should I look at alternatives to annuities now or wait until things recover?
It depends very much on your attitude to risk and capacity for loss. If you need guaranteed income and have no capacity for loss then an annuity is still right for you. With regard to waiting it is the trade-off between the income you are foregoing by waiting and whether you think the fund will have grown sufficiently to make a big difference and how long this may take. Another factor is the fact that interest rates are currently at historic lows, and the impact this will in turn have on annuity rates.
Please note that these are all example scenarios and not intended to form individual advice. To discuss your particular requirements please contact your Punter Southall Aspire financial adviser and we will be happy to help you.