Talk me down from worrying about/stopping my Vanguard pension

northnineteen

Money/investing not my forte but I (thought) I took my head out of the sand and opened an Vanguard pension, a SIPP. The packaged, "retire in 2035" one.

Enjoyed seeing the numbers go up, liked the platform and the visibility of everything, and made sure I put approx £300 in there every month.

I'm 50 years old (I know its really late...)
Started with £53K in the Vanguard product in June 2021, brought over from an old work pension
I've contributed about £4K since then
£1K is showing as tax relief
But overall the return at the moment is just .5%

I gather markets are down and this not the moment to panic and stop contributing, but I'd be really grateful if anyone could tell me that! Or anything else I could be missing.

Audaxer

If you have a long way to go to retirement it is a good time to keep contributing as you are buying more units at low prices.

What Vanguard fund(s) is your pension invested in, and what is your overall equity percentage?

dunstonh

Or anything else I could be missing.

It sounds like you have gone into Vanguard funds that start higher risk but reduce risk as you get older.   The flaw with these (not specific to Vanguard but all that operate this way) is that they start higher risk than the typical consumer risk profile and end lower risk.      

One assumes you knew that your investments were capable of a 30-40% loss in a 12 month period.    So, why are you concerned about a 0.5% gain in a 7 month period?

If you are paying in monthly, then you need these negative periods to make more money.    They are not bad news.   

Albermarle

If you go back a few years , you will very likely have seen some good growth in your previous pension. This can't go on forever and markets have corrected themselves a little in the last few months .
You have to look at the long term picture , not just a 6 month period.

Thrugelmir

To achieve a good pension focus on contributing whatever you can. This plus the effects of long term compounding will do the heavy lifting for you. 

Markets do fall that's the reality of holding stocks and shares. 

gm0

Your initial investment time horizon is from now until you want to draw on this money. Perhaps 17 years (67 normal retirement) or maybe a little less. And the full horizon if you used drawdown (and thus stayed invested) i.e. not an annuity is 47 years  (to 95 or so)

Business cycles and crashes and recoveries can regularly take up to 5-7+ years to play out and happen at random intervals but 2 or 3 times in 20 years is not atypical.  This is all normal. Expect several of these on your journey. 

Go and look at an "all data" time plot of the FTSE or S&P - a rollercoaster over a long term trend line bottom left to top right.  That kind of volatility will happen.  It is not a surprise.  We are talking >50% not a 5% blip for someone invested 100% in the stock market.  Middle of the road retirement funds are often 40% or 60% stock market content but people save pensions at all levels.  I saved at 100% equities for decades through several cycles but that doesn't suit everyone as it is nerve wracking when what you have saved halves in value even if you are buying "half price" investments for a year or two during the dip.  It's a good thing long term but human brains are wired to loss aversion and recency bias so it feels bad even though the maths says it's not really.

Big revaluations and reductions in value are "normal" and are usually followed by a recovery over years sometimes it's fast (2020), sometimes it's slow. The recent US tech stock boom and QE asset bull run years are an "upswing" on the curve - above the line.  But downswings happen and then the long term trend line plods along between them - so far that's been the history of investment markets. 

You can control to a degree how exposed you are to these wild swings.  There are investments you can choose that offer less longer term potential but reduce the exposure to volatility.  But no free lunch. If you don't hold many stocks in the mix then - you won't get much stock market return.  This is referred to as investing to your "risk appetite".  A bad thing to do is to invest above your risk appetite and then panic and sell in a crash  - this turns a paper loss into a real one - you now no longer own the investments as they recover just the smaller amount of money that you received when you sold in the dip.  Somebody else happily purchased them from you at that bargain price.

The only real problem arises if you need the money NOW and that timing happens to be an inopportune moment to sell.
Your plans for how the income turns up when you need it and what investments you hold need to allow for that possibility i.e. the when and how of taking the money out.  Which is why Vanguard created their various Life Strategy % "risk appetite" products and the Target Retirement date funds which simplify packaged up investing and offer a mainstream option at an OK price. 

All these products have their pros and cons to different conditions and are hotly debated.  I don't use the TR funds and haven't looked at them so can't comment on them.  That's the nature of investing. It's subjective.

Taking income is a different shape problem to get advice on or learn about later.

But swings while saving are mainly good news.  You get more investments for the money that is going in.  Keep saving.

Learn some more about risk appetite and check that you are happy with what you are doing.  Confidence when things get exciting will be everything.  Watch some Pension videos at PensionCraft.

It will hopefully seem less alarming when you can relate what is happening in the world and markets to your investment.

NedS

Audaxer said:

If you have a long way to go to retirement it is a good time to keep contributing as you are buying more units at low prices.

As above. Assuming you have a way to go until retirement, you should be delighted every time markets fall as you are getting the opportunity to buy at a lower price.

Also consider you are not just investing for the next 10-15 years until you retire, but will continue investing right up until the point you die, so you really have a 40 year investment horizon. History tells us stock markets are the best place to be over the long term so you have to find a way to deal with or ignore the short term volatility and believe that the long term gains will be worth it. You must fundamentally believe that anyway otherwise you wouldn't have invested with Vanguard in the first place.

Easier said than done though when your pension (life's savings) can easily fluctuate more in one day that you earn in one (or more) months.

bostonerimus

northnineteen said:

Money/investing not my forte but I (thought) I took my head out of the sand and opened an Vanguard pension, a SIPP. The packaged, "retire in 2035" one.

Enjoyed seeing the numbers go up, liked the platform and the visibility of everything, and made sure I put approx £300 in there every month.

I'm 50 years old (I know its really late...)
Started with £53K in the Vanguard product in June 2021, brought over from an old work pension
I've contributed about £4K since then
£1K is showing as tax relief
But overall the return at the moment is just .5%

I gather markets are down and this not the moment to panic and stop contributing, but I'd be really grateful if anyone could tell me that! Or anything else I could be missing.

You gather correctly.

STOP looking at your balance and keep investing !!!!!!

You are in an ok fund and before you do anything take some time to educate yourself about investing, asset allocation and risk so that in the future you can make some educated retirement decisions. For now just don't worry and don't sell anything, just keep buying. That's what I'm doing and I'm down quite a bit since 2021.

Bimbly

Audaxer said:

What Vanguard fund(s) is your pension invested in, and what is your overall equity percentage?

OP says: "The packaged, "retire in 2035" one."

That'll be the Vanguard Target Retirement Fund 2035.

[Deleted User]

Its all about time in the market.  Investments can drop 90% but over a meaningful period (like 10 years) the likelihood of seeing growth is very high.  6 months is not a meaningful period.  

You are in a good product.  Probably starting with 25% bonds and increasing over time.  This strategy makes a lot of sense.  I did the “increase” manually.  Started with 100% stocks and now at 70% but I am closer to retirement.  Probably won’t go any lower than 70% as we have some defined benefit pensions and can get by if equities drop a lot.

Do read some books on investing, particularly the ones covering history.  It helps to understand what is going on and to handle volatility.

northnineteen

Just wanted to say thank you very much to everyone that has commented.  

Particularly this comment resonated, ..."human brains are wired to loss aversion and recency bias so it feels bad even though the maths says it's not really."