Trying not to lose my shirt!

Anyone that bothers to read this will know that I occasionally post thoughts and musings about my various investments, the biggest of which is my pension.

When I transferred it back in May from Barclays to Scottish Equitable, it was worth quite a nice chunk of money! One month ago it had dropped by 10K, but today it is down another 10K, so it’s dropped 20K since May and 10K of that was in the last month. Now it’s obviously going down because of the turbulence in the world markets, but £10K in one month is starting to get a little scary. I have no idea how much I would have lost if I had stayed with Barclays – looking at the graphs of the Barclays funds they do appear to be down around 20-25%, so I may have managed to avoid losing more by switching to Scottish Equitable.

There comes a point when I think you have to re-think your investment strategy. If you are holding shares you might use a stop-loss mechanism to sell them when they drop a certain amount. The idea is to maintain the capital and not let it get eroded too much by falling share prices. Well you can do exactly the same with pensions if you have a scheme that is flexible enough.

There were 4 depressing documentaries on TV last night, Panorama, Tonight, Dispatches and The Price of Property. All of them were talking about the problems in the economy at the moment and the general consensus was that things are going to get worse. For instance, one quoted that for every 10 city workers that lost their jobs, another 7 unrelated workers would also lose their jobs. And with all those city jobs being lost, a glut of city centre apartments will appear on the London property market that will depress house prices and cause a ripple out into the wider economy.

Coupled with the increasing number of jobless people claiming state benefits, the reduction in tax receipts and the financial bailouts being proposed in the US ($700bn!) the public purse both here and in the US is also under serious strain. As more people join the dole, consumer demand will stall, and this will have an impact on the wider global economy, especially places like China which is so reliant on exports to the west. China also has it’s own problems with chronic power and water shortages and rising pollution which could limit economic expansion.

The outlook is gloomy to say the least.

So I believe stock markets around the world are due for further (big) falls and I don’t want to sit and watch the value of my pension pot fall as this happens. I’ll keep drip feeding every month into the existing funds I am invested in so that as the prices fall I can pick up more units, but I want to safeguard the capital I have built up over the years at Barclays.

So after speaking to my IFA today I took advantage of the flexibility in my new Scottish Equitable pension and switched everything into a mixture of gilts and cash. The idea is that even held as cash it will receive interest at the BoE base rate (currently 5%), and hopefully the guilts will provide a better return to help counteract the eroding effects of inflation, but basically the growth won’t be as good as previous years but at least it won’t be going down (hopefully)! So I can ride out the economic shit-storm that I believe is coming our way and when things start to recover in a year, maybe two years time, I can switch back into more adventurous funds. This is now the breakdown of my pension:

 

Fund

% of fund invested

SE BGI > 15yr UK Gilt

5

SE BGI > 5Yr Gilt

10

Index linked gilt

5

SE Newton Balanced Managed

10

With Profits Growth

10

Cash

60

You can see that I’ve put 10% into Newton Balanced Managed – my IFA recommended this as it’s provided good returns even during bad times. Of course, if BoE interest rates come down then I won’t be getting as much on the cash element, so will have to keep an eye on things. To be honest, so long as it doesn’t go down (too much) I’ll be happy just to ride out the downturn and then get back in when things pick up – I’ll need to keep a close eye on things so that I don’t miss out on any upswing.

Let’s hope I’m right and the markets don’t suddenly go stella! No doubt I will be posting updates in the future on this subject.

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