The Daily Telegraph - Saturday - Money
‘My pension lost £11k in three months – so I’ve taken control’
Watching your life savings diminish dramatically during periods of market turmoil can be excruciating. For Lynne Carroll, a 68- year- old former hospice worker, watching the value of her pension lose £ 11,000 in the space of just three months this year became unbearable.
“My pension with Scottish Widows was valued at £120,000 in December last year,” she said. “It is now worth £109,000, losing around £1,000 a week since December, or more than 10pc of its value.”
She has transferred the remaining balance to a Sipp with Fidelity. “I would appreciate advice on how to rebuild the value of my savings,” she said.
Ms Carroll will turn 70 in two years. She added that after she had achieved her initial goal of rebuilding the fund back up to its recent value of £120,000, she wanted to begin withdrawing some income from the portfolio after her 70th birthday.
Darius McDermott
I think it is important to say at the beginning that we are currently in a very uncertain world and volatility is likely to continue for some time.
Unfortunately, even cash is not really safe in terms of protecting your money because with savings rates below 1pc and inflation at 5.5pc, the purchasing power of your savings is falling fast.
As Ms Carroll wants to take an income in a couple of years, I would suggest that she invests in funds that pay good dividends. She can simply reinvest these payouts for extra growth until she needs the income. I’d suggest something like the BMO MM Navigator Distribution fund, which yields 3pc. The Ruffer Diversified Return fund is a lower-risk option, but it does not pay an income.
Then Ms Carroll may like to add some smaller holdings on the side. For example, she could add infrastructure funds such as Gravis Clean Energy Income or First Sentier Global Listed Infrastructure. These are slightly less risky, less volatile areas of the stock market and tend to have inflation-linked income sources.
If she is willing to add a little more risk she could consider a UK income fund such as the City of London Investment Trust. It does come with some risk because of its high exposure to stocks, but it has a 55-year track record of raising its dividend. It yields 4.9pc.
To try to get back to £120,000, Ms Carroll will have to take some risk and understand that she might lose more money.
We simply do not know what will happen in markets next. She could choose to drip- feed the money back into riskier assets over the next six to 12 months. That way, at least if the markets fall again, the impact is not so great. She could invest around £10,000 a month.
Rob Morgan Investment analyst at Charles Stanley
Committing a considerable sum of money to the stock market, even if you are an experienced investor, can be daunting, especially in the context of the terrible events we are seeing in Europe.
Provided that Ms Carroll is now happy to commit the money in her pension for the long term, she can generate returns from a variety of sources.
However, any amount she may need access to in the next five years should be held as cash. It’s better to be behind inflation than risk a big fall in adverse markets.
The key ingredient is diversification. Combining riskier assets such as shares and more stable holdings such as bonds can produce long-term growth while ironing out volatility.
For shares, the Fidelity Index World fund provides a low-cost means of mirroring the performance of global stock markets. The Monks Investment Trust is an alternative actively managed global option that invests in big companies such as Microsoft and Amazon.
Income funds are worth considering for balance. The Fidelity Global Quality Income ETF is a good “tracker” choice, while there are lots of active options such as the Fidelity Global Dividend, M&G Global Dividend, Artemis Global Income and Trojan Global Income funds.
To mitigate the volatility of shares and help smooth overall returns, bonds offer a good balance. The Janus Henderson Strategic Bond, Aviva Investors Strategic Bond and Rathbone Ethical Bond funds are worth weighing up.