The 2023 Pension Crash Explained (Why and what you need to do)
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- Опубліковано 17 чер 2024
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I am a Chartered Wealth Manager and Partner in a financial planning practice based in the UK. If you would like to find out more about working with us, please follow this link: go.novawm.com/getintouch
Videos to watch:
How to Sort Out Your Pensions TODAY and Retire Early
• How to Sort Out Your P...
Picking Funds | The 3 Big Mistakes Everyone Makes
• Picking Funds | The 3 ...
00:00 Intro
1:43 Who is responsible?
4:49 Default Funds
6:32 Fund Examples
9:57 Bond Expected Returns
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This could lead to a significant strain on pension funds, which may not have enough assets to cover the increased demand.
Even if bond yields are rising while stock prices are decreasing,the markets are still a bit skeptical as to whether the federal reserve will stick to its goal to raise interest rates until inflation is under control. Would it be best to sell my $210 k worth of equities, what is the best way to profit from the current down market.
She has been the CFA responsible for my portfolio success, she operates a private client base you can confirm her yourself on the internet, regulation and all that.
Planning retirement has never been this confusing! First SVB, then Signature bank and now First republic, these are all the signs of yet another 2008 market crash and recession 2.0, so my question is do I still save in the United States dollar, or could this be a good time to buy stocks? So I’m left wondering what 2023 has in store for us investors, I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here,
Everyone needs a different stream of income , unfortunately having a job doesn't mean security due to the high rate of tax , one needs to move ahead their expectation, I would recommend refraining from investing in stocks for now. Instead, it would be prudent to consider retaining a portion of your assets in gold. Alternatively, seeking advice from a financial advisor could provide valuable guidance in this matter.
true, A lot of folks downplay the role of advisors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for license advisors and came across someone of due diligence, helped a lot to grow my reserve notwithstanding inflation, from $275k to approx. $850k so far.
Do you mind sharing info on the adviser who assisted you? been saving for pension since age 18 - company scheme. along the way I hit higher tax, so I added to my company pension with a SIPP (tax benefits) I'm 46 now and would love to grow my finance more aggressively, there are a few cars I still wish to drive, a few mega holidays
I really don't like making such recommendations, because everybody's situation is unique. But there are many freelance wealth managers you could check out. I have been working with "Stacie Lynn Winson" for about four years now, and she's really, really good. If she meets your discretion, then you could go ahead with her. I endorse her.
I just checked her out and I have sent her an email. I hope she gets back to me soon
People grappling with the difficulty of meeting essential expenses often encounter this situation due to inadequate savings during their working years. The decisions taken in readiness for retirement carry extensive consequences, as demonstrated within my own family dynamics. Despite my husband and I having equal tenure in civil service, differing investment approaches yielded disparate results. Guided by a financial advisor, We are both retired and still earn monthly from our investments.
Indeed, that's accurate. I'm currently in my mid-50s. My husband and I were on a similar path until a couple of years ago when I decided to shift my investments to his wealth manager. While I haven't quite caught up to his accumulated profits over the years, I'm at least earning more now. I'm generating income even before retirement, and my retirement fund has experienced remarkable growth compared to what it would have with just the 401(k). It's quite amusing.
It's regrettable that many individuals lack access to such insights. I understand why people might become anxious. Insufficient information can indeed pose significant challenges. Personally, I've been able to generate over $25k passively simply by investing through an advisor, and the best part is, I don't need to exert much effort. Regardless of economic fluctuations, skilled wealth managers consistently deliver returns.
*@shirleygarland4766* Who is the professional who is advising you, if you could perhaps tell us? As a novice investing in stocks without the correct direction of a professional, I have lost a lot of money.
Do your homework and choose one that has strategies to help your portfolio grow consistently and steadily. ”Camille Alicia Garcia is responsible for the success of my portfolio, and I believe she possesses the qualifications and expertise to meet your goals.
I've taken the initiative to research Camille Alicia Garcia online and verify her credentials. I'm impressed with her expertise, and I've reached out to her to share my financial market goals in detail.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
Its unfortunate most people don't have such information. I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $87k passively by just investing through an advisor, and I don't have to do much work. Doesn't matter if the economy is misbehaving; great wealth managers will always make returns.
@@TomD226 I think this is something I should do, but I've been stalling for a long time now. I don't really know which firm to work with; I feel they are all the same.
Firms can be unscrupulous as they prioritise their own commission over your profitability. On the other hand, I prefer working with individual investors like Laurel Dell Sroufe, who only take a share from your profits, not your initial capital. I must say, my experience with her has been exceptional thus far.
I've watched 100+ different finance experts, but James Shack is hands down my favourite. The analysis is well researched, unbiased and presented in a very digestible way. Respect!
Thank you very much for the comment! Glad to be of service.
Yes definitely
I cant disagree, he knows his stuff and is obviously just trying to help people achieve greater financial security and stability which is obviously a good thing. My point is something slightly different , where can surplus wealth go when P/e ratios are too high and what value has gold when cities are riddled with crime, roads are gridlocked, icebergs are melting causing all these floods, we have to look at better ways to spend surplus wealth for greater quality of life along with protection and conservation of the planet. At the very least I'd like to see people have charity as part of their investment portfolio, the returns will be priceless. Saw on the news this morning Charles and Camilla visiting an Elephant sanctuary in Kenya, an elephant orphanage. No body can tell me there is not a link between increased wealth of China and increased poaching of Ivory . Better if the orphanage didn't have to exist at all but as it does am sure they could benefit from some funding, this is called 'Irredeemable investment' , you won't get to see your money back but you will have pleasure of knowing you've helped secure the future of precious wildlife. Restoring the rain forests would also be money well spent, this has nothing to do with being a 'do-gooder' as satn would label it, it is science, con-science, ecology and common sense. Remember, we are just temporary custodians of the planet.
me too!
Excellent video. Thanks.
The worse thing is the pensions advisers still get massive money
Excellent video James
top stuff James...........hope baby is doing well................always look forward to your uploads mate
Thank you very much Will! Yes he'd doing very well!
Could you give us a very basic demo of setting up a trading account, and then how to go about choosing funds to invest in. What you would do with say 20 grand.
Well regarding the bonds it is true that if you own a single one, at the maturity you will get your money back, however pension vehicles invest in bond ETFs, which is more complex, since they keep switching the bonds based on indexes' structure before maturity. That would be a good point for further analysis in one if your next videos
I like this vid.Good insight.
Hi James another great video, got a question if you had just entered retirement and had 70% invested in a global index and 30% invested in a low risk fund like a money market fund or bonds etc as your drawing money out of the lower risk fund should you regularly sell the global index to keep topping up the lower risk fund as your withdrawing money or should you just sell a certain amount per year I feel this is the argument for dollar cost averaging vs lump sum investing but with rebalancing the portfolio on withdrawals. This could be a topic for one of your videos 👍
How does this fit in with bond funds?
My company, partially at the urging from me and the few outliers who actually took note of their pensions instigated a change / consult about stopping the lifestyle option because it was clear that annuity rates were falling, many people would not be buying one or if so ata much later age and so people were being switched into cash something like 10-15 years before they *might* buy an annuity. I stayed fully invested into retirement I figure I may have another 20 years and then my kids will get what's left so going to cash makes no sense. Maybe when I'm a fair bit older I might buy an annuity with some of my investments. I'm lucky (and planned well enough) that I can ride out falls without an issue.
Could you have a look into royal London & the options they offer
Love the video James!! Just a small thing, the line "With great power, comes great responsibility", that's a Marvel Universe line, not a DC Universe line 😅
But saying "I'm Batman" wouldn't have worked as well 😂
Looks like the central banks are pausing rates with a likely future direction as down. If so we could see a sizeable rotation into bonds from equities and a surge in bond valuation.
This is a once in a generation fall for the 60/40 Model I’m gonna add more in to these funds now
I don't understand these graphs. Whenever I see the line go down for stocks, I see the line go down "almost as far" for bonds. Whenever I see the line go up for bonds, the line for stocks has always gone higher. And given enough time (a few months?!) stocks always seem to return higher than bonds, whatever the earlier crash.
To me the lines for bonds look just as terrible as the lines for stocks? (Until the last 18 months which you point out is not normal!)
Why shouldn't I go 100% stocks all the way to retirement? From these graphs, it looks like if I "reached retirement" and wanted to cash out, but was unhappy at recent performance, then I'd only ever have to wait a few months for recovery?
I’ve just moved my pension out of the standard lifestyle fund that has made very little over the last five years into a couple of funds, including for natural resources and gold mining stocks. My pension is pretty small and I’ve still got about 17 years before retirement age, so I thought it was time to take a risk and see if I can catch up..
Great vid!
Could you do a video about UK student loans? Is it worth repaying earlier if you earn X amount, should you just let it run its course etc
Are bonds goi g to improve form here on in though?
Can you purchase these bonds via a SIPP (eg. Vanguard) and if so... would you bother or just stick to index funds?
James, My question relates to asset allocation. I am 61 in April 2024 and feel I need to start to move into more bonds (currently 90/10 stocks to bonds).
As my full state pension is in effect a fixed income when it kicks in at 67, how do I reflect this in my asset allocation as I assume this is equivalent to holding a monetary amount of bonds and thus needs to be reflected in my overall asset allocation?
I moved my AVC to a 80%-20% it is slightly down but I am happy I moved it.
If i'm invested in a fund i woulds expect the fund manager to be adjusting the ratio of bonds to stocks on my behalf since he/she is the expert. I should not have this volatility due to bond prices dropping. They should have sold out of these bonds, the drop was expected surely as rates were going up.
Forgot to add the link, James. Final finger points to nothing! Thanks for getting me into a SIPP a few years ago.
What platform are you watching on? Tv?
This bloke is absolutely fascinating.
He’s giving great advice/commentary for absolutely no cost to YT watchers.
Yes mate and always replies to questions too. He words everything as childproof as everything and my finances have never looked better since watching tbf
Terrific clarity. Thank you
Wish I’d had this video a couple of years ago.
Thanks, thats answered my thoughts about the Vanguard lifestrategy 40. I retired last year and being roughly half my portfolio, I've not touched it. Jokingly before covid I said to a work colleague that all this planning of pension i bet there'll be a disaster or a third world war. 😢
You say many people prefer a DC pension. I think that is highly unlikely to be true. As you yourself say, DB/final salary is vastly more generous.
I'm so pleased I didn't settle for the default fund that my workplace pension provider put my money into 2 years ago. Luckily I moved into a passive global index tracker....saved me from losing my shirt just before retirement this year! I really don't understand how the big pension providers expect default pensions to give a decent return over ~30 years of retirement in they are not exposed to equities...perhaps they don't care, provided they have your money!
Probably some government rule that they have to buy bonds to support the money printing machine. I'm meeting my pension advisor soon and I want just stocks.
How long have you been waiting to use that DC line? :D
Why do the public sector still provide DB pensions? Surely rather than giving doctors/teachers etc DB pensions that they may not see the benefit of for 30 years they should give them more appropriate salaries? Don't get me wrong I fully support the NHS staff etc (it's generally the management causing issues) but why should they struggle with getting decent mortgages/houses now.
I was considering applying for a council job and had to figure out what value I put on the DB pension over my salary/pension.
With bonds overpriced, gold overpriced, real estate overpriced, the only place I found wise to put money is the stock market because from my experience it’s paid off more than any other investment I’ve gotten into.
Virtually everything is overly priced. I'm livid as to what to put money into that can bring me returns. I live paycheck to paycheck and I'm looking to have all that changed this year, as I want to have money work for me instead. Would you be kind enough to share your process?
Herman Jonas is the brain behind my success. I've gotten into a plethora of assets with $43k spread across stocks (options and futures) for the short term and Roth IRA, index funds, and ETFs, for the long term. Now I sit back, and just reinvest at intervals while I handle my other businesses.
Do not forget that prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence.
Hello, can he help me with investing? I'd like to hear from an expert.
Given the predictability of what has happened to bonds , why were they ever put forward to be employed as the large proportion of the "low-risk" part of pension portfolio investments? Is this a case of mis-selling or mis-representation of the true risk? As someone who has seen one of my pension pots cut in value by about 30% in the last year, with one year to go, I'm very unhappy that the pension company - who was supposed to be managing the fund to avoid major risk at this stage of the investment - apparently did nothing, or were incapable of doing anything! And I'm someone who does have a reasonable level of interest and understanding of investing. Thanks for an interesting video, James.
It only seems predictable in hindsight, some in the asset management industry has been anticipating rate rises every year for the last 10 years, getting it wrong every time.
Lots of people sold out of bonds 5 years ago, and then lost out as bond yields went negative in 2021 and prices through the roof.
No one can reliably time the market in the short term, and no regulated investment manager or pension provider will ever guarantee you that they can - that would be mis-selling.
This has been the worst bond crash for 100 years, perhaps longer. It's very unfortunately timing, but even with the recent crash, short/medium term bonds (which have only fallen 10-15%) would still be consider to be lower risk when compared with other investments. Low risk, not no risk.
Long term bonds however (down 30%+) are not low risk and have never been low risk. Their prices swing dramatically when interest rates rise. However it's rare to find these held in pension funds unless the strategy is set to buy an annuity on retirement.
I appreciate the DC universe "great responsibility" Spiderman joke, it made me laugh! (But I do have to point out that Spiderman is part of DC's biggest rival, which is Marvel.)
Oh shit! Haha
Bwahahaha was looking for this comment 🤣
Iam 34 years old and recently checked my fund which is aviva managed by mercer and it is worth 93500 does that value put me in good stead for the future? Just to add i put around 270 pm in as a 5 percent contribution and then my company doubles that.
Hi, could you help, we’re just about to sell our business and retire, due to luck (or skill) we will have a nice pot, however we are wanting to invest in a way that is ethical. ESG looks like a con and is in no way green, so how can we find out who to invest in?
Not just rising interest rates that have driven down bond fund performance - also inflation fears. They've been hit with a double whammy.
James could you please make a video about what is happening with the money in pension when you die early or your designated people die early. How much money are left in the found and wouldn't these be enough to cover someone elses retirement, taking the proportion between working age and retirees numbers drop. What is the point in spending all of this time and attention if we will work till 70 at which point most of us will be incapacitated if not physically then mentally. According to predictions 3rd of us will have dementia and no control over how our pension is used. Hours in learning unpredictable stocks and tons of money on stock advisors. It looks grim and depressing. Instead of building just society when everyone can depend on one another invest in retirement dependant on speculation. By default it is not sustainable.
Lifestyling funds are historically more attuned to people planning to buy an annuity. However, lots of folk with big pots made their money in non-financial jobs and genuinely don't have a clue.
Please correct me if I am wrong but I think you should point out that bond holdings are priced on their current "sell value". That notional value is used to price the holding, and very reasonable too. However if you don't exit you don't actually lose any money (unless you are invested in junk bonds which might fail).
I took control of my company pension a couple of years ago and moved my money out of the default “safe” fund and into passive global equity fund, plus a money fund…saved me from losing tens of £000’s!
With bonds (fixed income) generating without going into distressed/junk bonds, yields of less than 2% with interest rates only having the prospects of going up due to a rock bottom base rate.
What prospect did anyone with a nouse of knowledge have for bonds. Ok it's been exasperated by the rapid rise in rates meaning the value of these bonds not held to duration have plummeted.
The irony is now everyones scared off from bonds it is now arguably the best time in decades to buy bonds, strong yields and when the rates start cutting again these values will soar.
If I put all my pension into Vanguard and its more than £85,000, am I protected if Vanguard goes bust?
Quickly falling out with bonds
Great DC quip. Sadly that one was from the other side (Marvel). Wise words as usual on the content though.
I've recently logged on to my work's pension one of two down 8k in the past month it's in an investment lifestyle scheme I'm in the process of moving it to a vanguard sipp so I can self invest it....I'm only a few year's off early retirement I can't afford to take hits like this .
What makes you think you won’t get hit in the funds you put it in 🤷🏻♂️…. Markets don’t go up in a straight line.
Well I don't ...At least it will be my choice and the fees won't be sky high for the pleasure of watching the fund dwindling it will follow the same fund's as the isa and that's serving me ok .
I have a Standard Life Sustainable Pension. It feels like ESG or sustainable pensions are really performing poorly….I wonder what people think?
next shoe horn in a star wars "live long and prosper" reference
I see that I'm just one more viewer who massively appreciated the DC gag. You should be able to retire with that under your belt.
Haha thank you.
Whatever lump sum you can get your hands on, get it. Buy something that will sell on easily. Just do it.
Very interesting as I moved from lifestyling to a SIPP and bought 100% stocks. So what has more growth going forward now stocks or bonds?
Predictions are always difficult, especially regarding the future.
Stocks.
I think Lifestyling is out of date as many dont by annuities, i am 65 now but am still 85% in Equities. I use Global i dex funds to keep the cost down.
I agree, however Royal London have at least three different Lifestyle pension funds - one for annuities, one for cash, and one for drawdown. They all have the same fund allocation until you reach retirement. Other than the annuities one, this makes no sense to me. My pension was originally in the Lifestyle Drawdown fund, and had less than 40% invested in stocks, so it took a big hit when bonds collapsed.
The problem with DC pensions as you alude to is the knowledge and expertise of the individual in most cases isnt good enough. Point in question lifestyling was designed in essence to buy an annuity….
The curriculum needs to shift to support educating our children.
Any asset gets risky if it's priced too high.
Now is a better time to buy investments than, say, last month, if you are investing for the long term. Just enjoy the cheap shares while they last.
So how do I get out of bonds that have lost over 30%? Crystallise the loss and reinvest?
What bond fund are you holding?
They are various ones and all held in a defensive portfolio investment discretionary product - bundled together with equities- overall the product has dropped approx 30% - not sure if that helps answer your question
@@G3Z44 I can see you have booked some time in my diary for us to speak. We can discuss it then 👍
If i change my pension to be a tracker s&p 500 etc.. rather than the Bond low risk option my Pension is set at now as im 53. Will it be a mistake to change it while its 10% down? this year? Or should i wait till it goes back up? This is the issue? I want to retire at 56.
Are you being serious?
Why would you wait until stocks are more expensive before buying them?
@@MrJeffHead I'm talking about a SIPP that is down 10% since 2022. When i goto swap it to a tracker it warns of the impact to changing while down.
Fixed income (bonds) in the tracker are set at just 20% where as the tailored plan shows bonds are 36%.
@@MrJeffHead Buy high, sell low. Isn't that the way 🙂
Good video, explained in simple terms.
So, is it worth buying bonds now then?
Interest rates are going to fall and bonds have repriced themselves so bonds will do well going forward.
I warned people a while ago about pensions being hit it’s a con you put your money into a prison on the off chance that your going to be able to get some back if you live long enough and then you still get taxed on it
Hi mate, a question for you: I'm 40 years old and I work the NHS. I want to retire at 57 and I am thinking to start MPAVC or SIPP since I want to "manage" my own pot of pension money (not ERRBO, nor other options since it's apparently not so worth it and if leaving the NHS I will have problem in the future). So my question is whether MPAVC vs SIPP? Which one is better? In a normal employment Salary Sacrifice is possible however the NHS doesnt allow it and the only benefit is reduce Income Tax (20%). Cheers
Maybe you should consult an IFA in order to address your personal circumstances? I am not an IFA but there are some clues in James's previous videos, as well as this one.
If you are a higher rate taxpayer then deductions at source can keep you below the 40% tax threshold, which simplifies the tax treatment. If you are a 20% taxpayer then there's little to choose because anything that you invest (from income, or savings, tax paid) in a SIPP will receive a 25% rebate from HMRC, so you'll only miss out on reducing your NI contributions. If you follow the Money Purchase AVC (MPAVC) route, then you should be allowed to move some of your AVC fund into a SIPP, if you feel that the MPAVC funds are less suitable for your long term needs but you should also consider the charges of both schemes.
All this is so confusing! I've possibly got 10 years of pension payments through my employers. I'm 60 next may & I'm so stressed about having enough money when I retire. I've no idea what to do or how to do it! Is it a good idea to get a financial advisor to sort things out?
IF THIS IS ANOTHER SELL FOR AN ADVISOR I WILL REPORT YOU
@@slabbygabby NO IM A GENUINE HUMAN BEING!! WTF! Be helpful or shut up!!
So
Should we sit tight on the heavier invested bonds, on the view it will recover in sort term OR
Sell the bonds to move to bigger stock investments or is it too late now to switch
If the average person struggles with the accumulation phase of a DC pension then consider how much more of a challenge the DEaccumulation phase after retirement is! There is very little coherent guidance about this subject at all as no-one, not even the experts, has a clue about the best way to go about it. How much money do you need? How long will you live? What will inflation be? What will investment returns be? Very difficult to answer these questions with any degree of certainty. Although the demographics have deteriorated the beauty of PAYG pensions such as the state pension is that they are a proper form of insurance for retirees based on the average life expectancy which IS knowable so risk can be pooled. Our current system is hideously ineffective, inefficient and wasteful. While millions will not have enough money many others will die with much of their money untouched as they oversave.
Good video but increasing interest rates isn't the cause of the crash of bond prices.
James - you’ve hit the nail on the head when you said “….it’s pretty nuts when you consider the financial literacy of the average person in the UK…”. If you're looking for financial advice from the average person, you're better off asking a goldfish. This is why your videos are so valuable. Thank You.👍
Thanks for the comment and continued support!
That is not the issue. It is "experts" who advised people bonds are lower risk and experts who set up our pension funds to automatically switch to bonds. It is hardly the first time "low risk investments" proved to be anything but, there was a previous scandal over "low risk" investiment trusts targetting pensioners who wanted income. It seems if you are a "low risk" investor you are the mark for some Bernied Madoff character.
🐟. Sadly that's true. I have been investing in the market for 20 years but recognise it's been pretty hit and miss. I learnt the basics of p/e ratio, and debt to Equity but probably need to know a lot more to play the market especially now we are in a bear market.
If you are a financial planner James, how come I can’t find you on the FCA register?
My full name is James Shackell : www.linkedin.com/in/james-shackell/
@@JamesShack👍
He doesn’t do it for a living I believe just for himself and he is just passing on his knowledge .
Hi James. Any chance you can do a video on final salary DB pensions? Cheers
Can’t happen to DB scheme
Right, you are there.
Glad I've got one!
I am 54 and want to retire at 60 - I have 200,000 in ISA's and 100,000 in a pension fund - i want to boost my pension fund - should I transfer money from my ISA into my pension fund - I have 35 years of NI - many thanks
Do you have 1:1 courses?
Another excellent video James. Fortunately, i never went for the standard lifestyle option in my DC company pension since I wasnt keen on buying an annuity at retirement, so I went for self selected funds. This approach has served me well as I have recently been able to retire earlier than anticipated. Incredibly, whilst working the DC pension "advisor" told me that I was the only person in a relatively large company DC scheme not to be in the lifestyle option and to have my own choice of funds. I totally agree with trying to educate oneself financially and I started this process many years ago after a "fall-out" with my then financial advisor after years of very poor returns after which I realised that all they wanted was for them to make an income off my capital. I still have a lot to learn based on your videos, if only my financial advisor had years ago provided information as good as yourself !
Great video... I work in the NHS. I pay into the pension, and am considering investing more. I'm 43. Any pointers?
Don't know. I work for council, you can get a AVC to to up.
I think it needs to be stated that if you buy quality (such as uk gilts) individual bonds they are actually a very safe bet providing you hold it to maturity as you will get back exactly what you paid plus the coupons . The issue with a lot of pension platforms is they are investing your money in bond funds where the bonds are constantly being bought and sold before they reach maturity, meaning you are subject to what’s happening in the market.
Yup - absolutely nailed it.
It's scary how many late twenty, early thirty something's who turn their nose up at the mention of pensions or investing and quote that it's just a waste of money.🙈
I took charge of my pension in 2016, it is currently in a global passive index tracker, low charges of 10 bps.
Same here, i moved my previous work pension (stakeholder pension) that had done very well to a Vanguard SIPP. Ive been managing my own funds for 6 years now.
Nice
Bonds don't even seem safe......... no what? just hide out in the short end?
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Interesting video but unless you’re buying an annuity can you explain why your portfolio value would plummet if the prices of Bonds drop? You’ve already bought the Bonds so the government have to give you all your money back PLUS the guaranteed return. Surely you’d only lose a lot of money if you had to sell ALL or a lot of your Bonds at one time (ie when the Bond market is really bad). Can’t you just sell the Bonds as needed during retirement and hopefully they’ll go back up in price during the years you are retired?
James covers this mechanic at about 10:25
To expand though, the reason your pension's reported value drops is a function of the fair value accounting required by the financial reporting standards IFRS 9 and IFRS 13. In most circumstances, financial instruments (such as bonds) must be recognised at the value a market participant would pay, not just at the value of the cash that will be returned to you. As interest rates rise, bonds become less attractive so their value in the market drops. And that is what causes the drop in the reported value of your pension.
@@wololo4761 Thanks for clarifying this. That said James didn’t really explain that (in my eyes at least) there is no need need to panic if there is a drastic drop in portfolio value (due to Bond value crashing) even if you’re close to retirement UNLESS you have to actually sell your Bonds during the dip.
@@jacc88888that applies to every asset class, you only crystallise a loss if you actually sell. The problem if you're coming to retirement is that you will have to sell assets at a loss in order to withdraw funds from your pension to live on.
Where can I buy bonds?? Currently best place
As a long term viewer of this channel I am absolutely mortified you quoted a marvel comic and said it was DC 😉
Haha my bad..
Super explainer on the bond yield to maturity and why the price of a bond drops.
I’m four to five years from retirement this doesn’t really help
I don’t understand bonds.
So I can buy a bond for less than it’s face value, take the interest in the meantime and get the face value capital at the end?
How do I do this?
Yes, effectively you are correct (although you may find that some bonds have higher prices than the 'face value' - in these cases the bonds may be paying a higher interest rate...which then makes up for what you lose by paying the higher price). The advantage of buying individual bonds is that if you hold the bond to maturity then your income from the interest and principal is totally predictable....unlike the income/capital return from the bond tracker funds and the bonds in the LifeStyle funds (as people have recently found out). Interactive Investor allow bond purchases. The online buying process is as simple as that for 'stock funds'...you just state how much you want to buy online and the order is executed there and then. Bonds have different maturity dates and so you can create your own collection of bonds so that they mature on future year sequences and so provide a known income over a required period (much like an annuity...and without the associated charges). These are known as bond ladders...there's plenty of info on the internet about bond ladders, although the strategy is fairly obvious.
Great video man.
I’m 22 years old, and currently pay 12.5% of my salary into my pension. Would you recommend me pay a higher %?
Need a lot more info than that to give any sort of advice.
@@MrJeffHead say my salary is 30k a year and I still live at home with my parents
What does your company contribute?
You're doing great at that rate and will retire wealthy if you just carry on. Get it all in a range of index funds and relax . Remember, you need a life too.
Follow the simple path to wealth.. have opened ftse developed world ex uk fund.. it is diversified buy and hold strategy in tax wrapper SIPP
So, as my pension is mostly bonds and the income from them is steady, the asset value of my pension fund is immaterial? I.e. the “Bond crash 30%” is a dog whistle, with no practical impact on me.
But how about fund liabilities? How come the surpluses have risen?
Genius at breaking down complex systems. Another great video 😊
Most of my work colleagues have no idea about their pension, funds, amount and the size of their pot.
That’s how the fat cats like it. Playing with your money, making huge returns for them and leaving you with scraps and excuses.
Good
Invest in our company
Thank you very much Gordon Brown for getting rid of the final salary pensions! Yes, Labour is definitely for the working man!!
Righty ho, this is something I need to hear. I just hope there will be a happy ending at some point as my pensions and my investments have bled out badly of late. Makes you wonder why you bothered instead of just living a good life whilst the joints were willing, so to speak.
Although bond prices have fallen recently, future expected returns are now much higher. I can't comment on how long it might take your bond funds to recover - and they could even fall further in the short term - but you should be seeing higher yields moving forward.
Could I just let my pension provider know to chuck it all into Tesla and top up into Tesla with the monthly contributions?
Lol no. Unless you have SIPP which offers US stocks.
@@martindindos9009 OK, are you saying I could do so with UK stocks?
save 20% of what you earn and buy gold coins, one ounce Britannia coins, tax free, capital gains tax free, transferable fee free, no third party risk, ideal for long term saving.
Hi James, are pension companies at fault, by saying lifestyling was low risk ? Also can you explain how the coupon value, and actual value of a bond works with for example black rock 15 year gilts? As I dont see the coupon value it magically gets put back into the fund to maintain its value and doesnt buy additional bonds. Great video but still not sure what to do with a 30 % loss that shows no sign of improving, is the best thing to buy an annuity with this portion as a way to mitigate the loss ta..
No. Firstly in the DC world it’s your responsibility to invest your own money, and secondly although these options say they are lower risk, they are not no risk. Even with the recent sell off, bonds on the whole have still been less risky than stocks.
Although it’s important to differentiate short and long term bonds. As detailed in the video, Short term bond prices are not as sensitive to interest rate changes, so they are low risk.
Long term bonds prices however are extremely volatile and are typically not suitable for retail investors.
@@JamesShack thanks James, any comments and the 2nd part of my question ?, 😀
I wish I had understood several years ago the inverse relationship between annuity rates and bonds - it would have prompted a much more urgent transfer of DB funds into a SIPP.
In your specific case, using cash from bonds to by an annuity should be more or less cost-neutral. On the other hand, using a portion of your equities pot, which may have grown more, while waiting for bonds to recover some ground, is an alternative approach. Which you choose really depends on your attitude to risk. Exchanging bonds for an annuity now, you know exactly where you are. No one really knows if or when bonds will recover, or how far, nor can they say whether equities will continue to fall, as they have done in recent months, or regain the longer-term trend of continuing to grow.
@@davem.4003thanks Dave that makes sense, i guess I looking for a way to lessen the pain of -35% I know low risk doesnt mean no risk... but there is still an expectation of .. well lower risk than equities...strangely the fund factsheet shows higher risk but pension companies are happily passive, which is a bit annoying since you might think with their huge resources the would zbe more reactive.... but hindsight an all ....