Is your pension plan safe?
When the stock market is in turmoil, you are likely to ask yourself whether your pension or retirement fund, whatever the type, is safe. If you are heavily invested in individual stocks, you may have cause for concern.
The fact is that when the stock market falls, some stocks fall, some stay where they are, and some go up. Generally, it is the more conservative stocks that do well when the market as a whole do badly. Most do badly, and a few do well – maybe 10-25% of the listed stocks.
Your fund is likely to be invested conservatively – unless you have asked for an aggressive approach. So should you find out what your manager is doing? It is always a good thing to know what your fund is doing, and to ask questions about it. If you don’t know how to do this ask the committee of your 401 (k) fund. Of course, if you manage it yourself you will know what is happening.
If the Dow drops 1,000 points, you can expect to lose quite a bit of money – on paper at least – unless your fund manager is very shrewd. Often, so long as you hang on, the fund will bounce back, but not always.
The problem is whether to sell out or to wait for a recovery. Or maybe to buy government bonds.
There is a dilemma facing fund managers. Although interest rates may be going down at present, the trend is for them to go up, and that is bad for investment in Treasury Bonds. This makes the timing of buying of bonds tricky, and encourages manages to go for higher yielding bonds which may not be very safe.
One alternative for fund managers is to hold a lot of cash on deposit while they see what is happening. The trend in interest rates may be up, but this could be the end of the trend!
Either way, your fund will not lose money in a money fund, but in the long term will lose out to inflation. therefore, putting retirement funds’ cash into money funds is a goods tactic in the short term, while the fund managers take stock.
So what should you do? Never sell when the market is in a panic – you will get a bad price for whatever you sell. Be patient. Your retirement fund will have 10, 20 or even 30 years to run, which gives time to recoup your losses. Also, a steady move to a more conservative balance to your fund should be the way your fund is managed. In other words, if you are 25 the fund manager can be more aggressive than when you are 40, and by the time you are 60, the fund manager should be very conservative, conserving the funds you have.
Bear these points in mind if you are tempted to get out of your pension, and turn into some other investments. And whatever you do, keep saving into your retirement find.
Disclaimer
The information on this web site does not constitute an offer in any way. It gives general information, but is not financial advice. The aim is to help you decide what to do about your retirement plan, and the importance of saving for retirement. You should consult a retirement planning adviser with a proven record before setting up a retirement plan.
Leave a Reply
You must be logged in to post a comment.