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As we feel the effects of the difficult economic headwinds of 2022, a trend appears in the questions our clients ask their advisers. In this case, the question we’re hearing is: At What Point Are You Going to Move My Pension to Cash to Protect the Value?
Volatility in the markets creates a natural tendency for people with invested funds to think that the safe haven from this volatility is in cash, and this isn’t entirely untrue. However, moving pensions into cash brings with it the potentially greater risk in that long-term performance can be diminished significantly. History tells us that if we consider long-term performance, the risks of moving to cash are stronger than the risks of staying in the market.
Whilst the advice would typically be different for those looking to retire in the near future, as a piece of general guidance, experienced financial adviser, Philippa Payne BA (Hons), DipPFS shares her thoughts on the question:
A: In short, it is rarely the right decision to move your investments to cash in market downturns.
History and experience tell us that time in the market is more important than trying to time the market. Stocks and shares investments such as pensions are long-term investments and therefore reacting to short-term volatility due to emotion can severely affect the overall performance of your pension.
The chart below shows that over the long term, there is an upward trend of returns from equities and bonds, despite the short-term volatility caused by major events. But these returns would only have been earned by an investor who stayed the course during downturns.
Investing with a long-term outlook is the best way for you to reduce the impact of stock market fluctuations and to grow your investments over time. History shows the potential benefits of long-term investing. You need to be able to stick to your plans and ‘ride out’ the ups and downs, although disheartening to see the value fall over the short term.
