What a rollercoaster. By the time you read this, there will undoubtedly have been more ups and downs across the world’s stock markets. We’re not even through the first quarter of 2020, and there have been so may storms to contend with, we’re all feeling rather wind-swept.
The meteorological storms have hit some people hard, and the clean-up exercise will take time to complete. Then it’ll be back to business as usual for most.
The same could be said of the coronavirus storm. Although the UK may not have experienced the biggest onslaught yet, things will eventually head back to normal.
In the meantime, the financial storms that the virus has given rise to are proving rather unpredictable.
Impact of isolation
The obvious impact is the reduction in economic activity as isolation measures are put in place to limit the spread of the virus. People are travelling less, putting pressure on airline profitability. People are being told to stay away from their place of work, that impacts manufacturers and physical service companies differently from knowledge-based companies. Stopping production in one part of the supply chain puts pressure on other manufacturers further down the supply chain who need essential parts to complete their orders. Demand is now starting to wane as well, and that puts a further strain on those who can’t sell their goods or services.
A lack of demand for crude oil led to Saudi Arabia seeking the support of the Organisation of the Petroleum Exporting Countries (Opec), and nations outside the organisation, to reduce production in order to stabilise prices. Russia, one of those outside the group, didn’t want to play ball. An irritated Saudi Arabia retaliated by making plans to increase production and flood the market, putting pressure on Russia to submit.
The result was a 30% drop in oil prices which led directly to the big fall in global share prices that we woke up to on Monday 9 March.
Coronavirus and your pension
No one knows quite how the coronavirus story will play out, but from the perspective of the value of your pension savings, there is certainly no reason to panic. To help you sleep at night, here are a few things to remember.
- You invest your pension contributions over the long-term and the ups and downs of markets are a necessary and important element of investing. In fact, when markets are down, your contributions buy more units in the fund which means that when prices go up again, those contributions benefit from the recovery.
- What if you’re close to retirement? It’s difficult to make up a sudden loss in the value of your pension pot if you don’t have many years left before you want to access your savings. That’s why we gradually move your money into a safer environment as you approach the retirement age we have recorded for you. The day before you reach that age, only a small amount of your fund value will be exposed to investment markets, and that significantly reduces the risk of a nasty bump in the road at the wrong time.
- Our all-weather approach to investment management is designed to cope with unpredictable markets over the longer term. It’s often the case that, when one of our investments is having a rough time, another will be benefiting. Over the past few weeks, the value of one of our investments (global shares) has suffered, while another (government bonds) has benefited.
- This all-weather approach has meant that the value of the NOW: Pensions Diversified Growth Fund (DGF) has held up relatively well in the recent hiatus. As at 11 March, the DGF is up 4.9% over the past twelve months. That said, past performance is no guide to the future, and the value of your fund can go up as well as down.
Who knows how this will all play out? All we can do is continue to manage your money in a way which we believe strikes a good balance between achieving strong long-term returns and protecting against short-term volatility.
Rob Booth, Director of Investment and Product Development