Is it a 'nestegg' or 'money down the drain'?

frankief_2

After years of complacency, I finally started a Stakeholder scheme 2 years ago, figuring the tax relief was worth it. I am a basic rate taxpayer and pay £200/ month into a Halifax scheme. Nowhere near retirement yet. The contributions are invested in International Growth Lifestyle fund & UK FTSE Allshare Lifestyle fund.
With the present economic conditions worsening and I believe they will get worse, what is the best plan of action?:

• Stop paying anything - pouring good money after bad, stick it in a fixed rate deposit account if you can find a safe bank. Reassess the situation next year.
• Increase your contributions - your pension fund will be buying up shares at lower prices which should increase if/when the FTSE rises in the years to come?
• Do nothing - life's a gamble, you might win or you might lose.

dunstonh

With the present economic conditions worsening and I believe they will get worse

Which doesnt necessarily mean the stockmarket will get worse. The markets have already priced in recession and inflation concerns.

Stop paying anything - pouring good money after bad, stick it in a fixed rate deposit account if you can find a safe bank. Reassess the situation next year.
Increase your contributions - your pension fund will be buying up shares at lower prices which should increase if/when the FTSE rises in the years to come?

The stop option would mean you would stop buying units when they are cheap and wait until they have gone up again before you restart. That means you mis out on cheap prices and the early period of the recovery.

There are a few of things you need to be aware of that the general media wont have told you.

1 - Stockmarket crashes occur on average once every 5 years. a crash is defined as being a 20% drop.
2 - The FTSE100 is only down 28%. The last one at the start of the millenium was down 43.5%. This drop is quite normal by crash standards. The reasons why a crash starts are usually different but this one so far hasnt been as damaging as the last one as far as the markets are concerned.
3 - dividend yields a few weeks ago exceeded gilt yields for the first time since 2003. Usually seen as a sign to start considering buying shares again.
4 - Many shares are trading at a discount (valuing them less than the net asset value). Usually seen as a sign to start considering buying shares again.
5 - future earnings have more or less been wiped out of the share values. We are not in a bubble situation.

No-one knows when the bottom will be (or the top when things go up). However, there are increasing comments coming out now that we are more or less at bottom and there is value appearing again. This is reflected by some of the most well known and successful investors having started buying again recently. They could be right, they could be wrong.

If I was you, I would be more concerned with teh fact that you are paying into the Halifax stakeholder. You bought a full cost stakeholder pension from a sales rep. Your contribution ought to be diversified more and a personal pension would almost certainly have been better to achieve that. Especially if you have more than 20 years to go to retirement. You currently have a medium/high risk spread but you dont sound like a medium/high risk person.