Four ways to weather stock market storms

Putting all your eggs in the same investment basket means you’re much more exposed if something goes wrong with that particular investment.

It’s a good idea to check that your investments, whether in a pension, stocks or shares ISA or held outside these tax-efficient wrappers, are well-diversified. This means that you should ideally invest across a wide range of assets and funds, so that if one or more of these performs particularly badly, hopefully any losses might be offset by gains made by other investments.

Maike Currie, investment director at Fidelity International, said: “The latest events in Ukraine and the volatility they have caused in stock markets come as a reminder that it pays to have a diversified investment portfolio that is not too concentrated in any region or type of asset.

“Regardless of how experienced an investor you are, it is almost impossible to predict how the market is going to behave. It may sound counterintuitive but staying invested through volatile times can be the best approach. Trying to time the market leaves you at risk of missing unexpected opportunities that might arise from market corrections while also posing the impossible question of when is best to buy back in. Taking a long term approach and remaining invested in spite of highs or lows is more likely to get you the outcome you want. As ever, diversification is key.”

A number of pension funds have a function called ‘lifestyling’, which means that as you get closer to retirement, they automatically sell some shares at regular intervals and move your money into less risky investments, such as bonds and cash. This essentially helps to protect you from big swings in your pension pot value just before you need it. However, current high inflation and rising interest rates have meant the value of lifestyling funds has fallen recently, and some commentators think there could be worse to come.

Most pension providers offer this function automatically on their default funds, but if you aren’t sure about where your retirement savings are invested, it’s worth contacting your provider to find out. Find out more in our guide Where is my pension invested?

Laith Khalaf, head of retirement analysis  at AJ Bell said: “Investors who are approaching retirement should definitely take a look under the bonnet of their pension plans to see what’s going on, and if any automatic switching is taking place, they can then make an informed judgement on whether it’s appropriate for them, based on what they’re going to do with their pension.

“If you think you might be invested in a lifestyling fund, check your latest valuation or speak to your pension provider. The funds in question will normally be called “long gilt” or “long corporate bond”, and will invest in long-dated government or corporate bonds. If you are going to buy an annuity with your pension, you might consider sticking with a lifestyling strategy. But if you aren’t, then you should give careful consideration to picking another type of fund to see you through to retirement, and beyond.”

Author: wpadmin

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