Your pension and the stock market

Although the FTSE 100 Index has been growing steadily over the past 12 months (as of Oct 2024), any investor will know that any share index is prone to periods of volatility.

Often called the ‘Footsie®’, the FTSE 100 is the one you’ve probably seen or heard mentioned on the radio and television. It measures the value of the UK’s largest 100 companies (based on their current market value). Its value moves up and down from minute to minute, hour to hour, on the days when people buy and sell shares. Many of these Footsie® companies are household names, such as Unilever and Tesco.

Why is the FTSE 100 important for your pension? Well, unsettled stock markets can affect it and world events can unsettle stock markets. In today’s 24-hour news cycle, information can sometimes make things look worse than they really are. But in the short-term they can also affect the value of money held in your pension.

Pensions funds invest in company shares, bonds, property and Money Market Instruments (Cash). with the aim of helping people like you save for retirement. The reason why pension schemes make investments in company shares and bonds, rather than leaving your money on deposit, is because inflation reduces the value of your pension savings over time. That’s why we put your money to work in stock markets and other asset classes, including fixed income, namely government and corporate bonds.

Over the short term, stock markets will rise and fall in response to each day’s trading. Over the long term, your pension is designed for decades of investment ups and downs, not for this week’s news headlines.

Taking the long view, there is one hard truth about investing: nobody knows when stock markets will rise or fall. We’d all like to find a way around the fact that stock markets and bond markets wobble from time to time, but that goes with the territory. With investing, the simple fact is that past performance is never a guide to the future and your money is at risk. So, you could get back less than you put in.

Your pension money and investment cycles

*Past performance is not a guide to the future.
Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2024. 4 October 2024

The first thing you’ll notice about the FTSE® 100 graph is the shape: it resembles a mountain range with peaks and valleys. We call these ‘investment cycles’ and they can be influenced by many different things including good and bad news about specific companies, changes in the value of the British Pound and other currencies, as well as political uncertainty and unexpected events like the Middle East crisis and Russia’s invasion of Ukraine.

The shape you see here is the type of path your pension investment takes as it crosses this mountain range from month to month, and from year to year, as you travel through your journey towards retirement.

If you look closely at the graph, you can see several occasions when the market has fallen and then recovered. But nobody knows exactly when this will happen, and if you had that information in advance, you wouldn’t be reading this right now.

One of the advantages of investing in one of the dips is that shares are cheaper than at the peaks. If a company is a successful business and represents good value, this could represent an attractive opportunity for investors and especially stock pickers. In this situation, you simply get more shares for your money than when share prices are higher.

How we can help you

Given the constant changes and uncertainty of the FTSE 100 and the impact of inflation on pensions, seeking specialised independent financial advice becomes crucial. Blackford Financial Services will provide expert guidance and tailored strategies to help see your pension investment through these changes. It’s what we’ve been doing since 2004 – providing independent financial advice to individuals, families and business owners in the Isle of Man. From pensions to other investments, mortgages to life and family protection, or whether you are looking to start your financial plan or gain an independent review of your existing plans, Blackfords are here for you in Douglas, Ramsey and Port Erin.