News and Analysis | David Macdonald | June 24, 2022

Retirement planning in a volatile market: what you need to know

The cost-of-living crisis deepens, inflation has hit a 40-year high and many analysts are warning of a recession. In turbulent times like this, it can be worrying to see the value of your retirement savings move up and down unpredictably.

Even for an experienced investor, market volatility can be unsettling – especially if you’re looking to retire in the near future. After years of saving, you may be worried about your pension falling in value and how this might affect your retirement plans. Should you be concerned?

The big picture

Whilst headlines abound with gloomy forecasts for the UK economy, let’s not overlook the big picture. Saving for retirement is a long-term goal, after all. The value of your investments will go up and down each day and unfortunately, recessions are a normal – albeit unnerving – part of investing.

Investments can be volatile, but it is generally expected that over the years, rises in the stock market will balance out the falls and provide good returns overall. And whilst things may currently be more unstable, money held in pensions over the last decade has generally performed well.

It’s also worth remembering that what’s in the headlines won’t necessarily be consistent with the performance of your own portfolio. Depending on your individual situation and how your money is invested, you might be experiencing less significant drops than the market overall.

Minimising risk

The reality is there is no such thing as a ‘no-risk’ investment. Investing always carries risk, but you can manage it by diversifying investments over the long term. Spreading your investments among different asset classes will reduce the risk of your overall portfolio under-performing or losing money.

Most pension plans are flexible, with the risk often reduced as you get closer to retirement. If you’re still concerned, then you could consider de-risking your portfolio further. At Path, our advisers work with you to make sure that your portfolios are tailored to your personal risk tolerance in addition to your values, meaning you don’t have to worry about alarming ups and downs if you don’t want to. We can help you to review your portfolio regularly to make sure the balance is still right for you.

It’s also our view that investing in dying and threatened industry is riskier in the long-term. Diversifying away from these industries and instead investing with those companies tackling the major issues threatening the world seems like common sense.

Taking control of your retirement plans

It might be tempting to sell falling assets or switch to a different pension plan when you see your balance falter, rather than waiting for the turbulence to run its course. But, be patient.

Long-term investment products are designed to weather short-term fluctuations. If you’re thinking about taking a loan or withdrawal from your retirement plan, or selling assets, make sure to consider all of the implications of this. A knee-jerk reaction could lead to losses. You can read a bit more about market timing here.

Younger investors who are not planning to retire for some time have a longer timescale for the market to improve. However, if you’re hoping to retire in the near future, you might be considering delaying your plans to give the market extra time to hopefully recover. Although this may be a last resort, continuing to work is a way to avoid withdrawing from retirement assets, and you’ll have more money to add to your pension pot.

Seeking support

Market volatility is a timely reminder to keep your investments under regular review. Our advisers can help you to be prepared with a well-balanced investment portfolio, tailored to your goals and your financial situation. They can help you to review your plan regularly and make any changes if they are needed.

These are uncertain times, but the best strategy is to stay calm, review your plans and seek some expert advice if you’re worried.

For more information about retirement planning, visit our Knowledge Base, or get in touch with us for a chat.

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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