Big drop in the value of my pension pot

gm0

Fellow consumer with diminished funds. Here are some hopefully reassuring thoughts.
This is indeed a worrying time for pension and other stocks and shares investments. And loss aversion is baked into our psychology.  It is normal to feel bad during a correction.  What you do or don't do based on your funds + time horizon needs to be clearsighted and not fight/flight emotional.

As others have pointed out the ups and the downs (called volatility in the jargon) vary with what you or your scheme or your adviser choose to invest in.  You are usually asked to choose when you first join an employer scheme but some have a default fund and leave it up to you to move away from that if you desire something else. 

The very long term story of stock market investments is "up" - dividends reinvested and capital growth - this is called "total return".  But the swings are huge if you look back to the various crises and crashes since the 1920s, Black Monday, .com tech crash, 2008 financial crash etc.  Any financials new website will have it - click "all data" on a global stock market index and look at the shape of the graph.

Right after a crash is usually exactly the wrong time to sell. You have taken a paper loss (on the way down) but still own the fund units containing the mix of assets, stocks, shares, bonds, whatever it is. But you miss the recovery if you make it real by jumping to cash. The government tends to behave in ways that erode cash value in a crisis which is another factor to consider.  The £ you have may not keep its purchasing power.  Now the market can dump another large amount and there have been times and places where the prices bump along the bottom afterwards for years - Most famously Japan and it's "lost decade".  Globally this is more unusual though.  Selling now is an active bet that it will fall again another 25%. But even then how and when will you decide it is *over* and time to reinvest to start to hedge your future retirement income against inflation.  This is what drives the  strong school of thought that "ride it out" (and keep saving) is the correct strategy - *provided* and this is the big one - you can take a 5-10 year perspective. It can take that long to recover.  Warren Buffett's famous "what matters is time IN the market not timing the market".  People with more of a short term gambling/entrepreneurial streak disagree.  Some win.  Many lose.  

Also to keep calmer remember drawdown is not an all or nothing thing so it is very possible to take a slice of pension income in the next few years if that becomes necessary without locking in current losses for the whole fund if your circumstances allow this.

If you were poised to imminently buy an annuity with your pot in the next year or two then you have my sympathy but you will need to review your plans as this may not be the best approach right now.

As to choosing your investments - there is a vast and sometimes bewildering amount of investment information out there. 
One suggestion - you may find the PensionCraft videos on youtube on "how to choose a fund" useful or his reviews of the major multi-asset funds (Vanguard Lifestrategy).  His explanations and graphics on return, level of equities and volatility of different fund types - active and passive are quite clear and simply expressed.

For today - the basic relationship while you are saving through life though is "more equities = more risk = more potential for higher return but also more volatility (bigger swinging up and down).   The perfect "highest return" + "low volatility" combination investment doesn't really exist.  If somebody thinks it does - then I have a bridge to sell them.  If it did - we would all be in it. 

We manage our risk (down) by not buying single company shares, or single countries, or industry sectors.  We either pick what we think will win (active) or buy the "whole of the market" (passive) - but either way we spread the money out.  Diversification is the jargon term for this.

A long way out from retirement a high equity percentage makes a lot of sense - buying cheaply out of monthly contributions rain or shine i.e. during the crashes and on average - doing well over the long term.   As an example I was 100% all through my saving phase but people with different risk appetites and comfort with swings choose lower % e.g. 60% or even 40% but their "pot" will grow more slowly and swing less wildly.

Near retirement some traditional schemes dial down the % - sometimes by nudging you (annual reports) and offering you the choice changing your investments with age so that you are in low volatilty bonds and/or cash and ready to buy an annuity at a fixed date at the point of retirement and not surprised by an sudden event like this where the fund value suddenly swings by 25% or half or whatever it is that particular time.   Again very sensible if the plan is to buy an annuity on a fixed date.

But if you are investing for a long retirement and your plan is drawdown then a level of risk (and equities) still makes sense as the plan is longterm 30-40 years, inflation is a factor to overcome, interest rates are very low and cash + bonds alone likely won't deliver the long term income and inflation uplifts.  You need to stay "in the market" no exit 10 years ahead of retirement and stay out thereafter. But how much is enough.

Data based on the history of stockmarkets and modelling drawdown suggests that a lot less than 40% is too little for a satisfactory income.  And more than 70% equities is likely too much as the volatility increases too much.   People with very small or very big pots don't necessarily fit neatly into this oversimplified narrative but in general it holds.

At 70-100% - you are more likely to die with money left over (and often quite a lot more of it), but more "failures" where you run out and are too old to work start to appear when you look at the history of all retirement dates and what would have happened to you.  This is using the past (including the great depression of the 1920s and the world wars as a guide to the future).  This is not a guarantee that everything will be OK.  But it is a wide envelope of past behaviour to make a plan that would usually have been OK i.e not reckless. 

Ciprico

It may also help to look at how much of your hard earned cash you actually paid in. Overall you may still be considerably? "Up".
Not much real benefit I know but may make you realise your previous investment decision was not so disastrous 

dunstonh

And Philip Greene anyone?

Irrelevant for you and your pension.

Should I now change the investments into a less risky area (what in ?), all of it. I presume then that as the market is on a downer, this will curb the losses. 

You mean, sell some of the riskier parts after the markets have gone and miss out on the recovery when it happens?

The markets, apart from the US, have actually been more stable this week.  It could do down more.  It could now be in the ballpark lower range.   We don't know yet.   However, if you pull out now, you will crystallise your loses.

What did you do in 2015/16 when markets dropped 20%?  

What did you do in 2008/9 when markets fell by more than now?  or 2001-3 when they also fell by more than now?

If you did nothing, why are considering doing something now?

thornlv

123mat123 said:

It may also help to look at how much of your hard earned cash you actually paid in. Overall you may still be considerably? "Up".
Not much real benefit I know but may make you realise your previous investment decision was not so disastrous 

Thinking on it like that does in some way reassure me. My take on it is this. Half of the contributions paid in were from my employer, so I still have a very sizeable return. Skimmimg through the historical balances I find that some months/ years were extremely profitable. Comparing it to just maybe having saved in a normal bank account I could have been much worse off.

Dunstonh I think you need to realise that not everyone is a financial expert, and at times like these a lot of ordinary people are very worried about their health risks and pensions. You equating a rainy day to loseing 17K came across offensive. almost the same as saying 'its all your fault anyway' .not very helpful, I certainly would not come to you for advice
That Green fellow, didn't he run away with a nice pay off while his ex employees lost huge amounts from their pensions?
You hear about people like him all the time, the distribution of wealth is heavily weighted against the ordinary working man. May well not be relevant to my situation, but I will guarantee...someone is going to pocket some.

gm0, that was really very helpful. Thank you that you took some time out for that, much appreciated.

Talking a quick look over previous years balances, the worst loss on them was 2008/9 where my Standard life pension lost 1.5k overall. I did not start the L&G workplace pension till 2009 and since then the worst previous end of year balance was in 2015/16 whereby it only increased by 3k, and I personally only put in about 2.5 K. This year is the first loss, 2017 to 2019 were big years (16k and 10k) so seeing a loss of 17k in one month was a big shock never experienced any where near before. Over this year it has averagely increased by 1k per month, I put nowhere near as much of that as have been off sick for half of it.

Maybe I should start betting on horses, the old man said he has had a good year so far, only joking, have never gambled more than 50p on seaside slot machines.

kev2009

I know the feeling, i checked my pension a few days ago and it had lost maybe 5k but now its lost a lot more.... however, i have 20+ years to go till I retire i i'm suspecting the markets will bounce back as they usually do.  It's now just a waiting game to see how long before things improve and markets start to recover.  One thing to remember is that pretty much everyone with a pension has lost money, even investors so we all in the same boat.  Looks to be very few shares actually making money, most are making some one day and then losses the next etc.
Kev

Prism

thornlv said:

Dunstonh I think you need to realise that not everyone is a financial expert, and at times like these a lot of ordinary people are very worried about their health risks and pensions. You equating a rainy day to loseing 17K came across offensive. almost the same as saying 'its all your fault anyway' .

Its not at all about fault. Its just that this sort of fall happens all the time. My investments lost more as a % just over a year ago. There was a big drop in 2015 and a huge one back in 2008. What has happened over the last month or so is entirely normal

Thrugelmir

thornlv said:

123mat123 said:

It may also help to look at how much of your hard earned cash you actually paid in. Overall you may still be considerably? "Up".
Not much real benefit I know but may make you realise your previous investment decision was not so disastrous 

That Green fellow, didn't he runaway with a nice pay off while his ex employees lost huge amounts from their pensions?

Maxwell, Nadir, Saunders the list goes on. 

thornlv

Talking a quick look over previous years balances, the worst loss on them was 2008/9 where my Standard life pension lost 1.5k overall. I did not start the L&G workplace pension till 2009 and since then the worst previous end of year balance was in 2015/16 whereby it only increased by 3k, and I personally only put in about 2.5 K. This year is the first loss, 2017 to 2019 were big years (16k and 10k) so seeing a loss of 17k in one month was a big shock never experienced any where near before. Over this year it has averagely increased by 1k per month, I put nowhere near as much of that as have been off sick for half of it.

Maybe I should start betting on horses, the old man said he has had a good year so far, only joking, have never gambled more than 50p on seaside slot machines.

Thrugelmir

kev2009 said:

 Looks to be very few shares actually making money, most are making some one day and then losses the next etc.

Shares don't make money. Companies do. Profits matter. With any bad news will come a rerating of an individual share. Companies are unable to give forward guidance as they don't have a clue themselves!
If any Government steps into to support a Company (as was the case with RBS). Existing shareholders will see a major dilution in the value of their investment. 

kuratowski

thornlv said:

Talking a quick look over previous years balances, the worst loss on them was 2008/9 where my Standard life pension lost 1.5k overall. I did not start the L&G workplace pension till 2009 and since then the worst previous end of year balance was in 2015/16 whereby it only increased by 3k, and I personally only put in about 2.5 K. This year is the first loss, 2017 to 2019 were big years (16k and 10k) so seeing a loss of 17k in one month was a big shock never experienced any where near before. 

That could be because you have now accumulated a bigger pot now than you did then, so the same % drop is a bigger amount in £.  And as mentioned earlier the SL pension may well be applying profit smoothing.

The best advice was given earlier in the thread - don't keep checking the value, investing is for the long term.