You may have noticed your pension fund’s balance moving up and down during 2020. That fluctuation is a result of volatile markets due to the Covid-19 outbreak. This is the impact of Covid 19 on pension plans.
The outbreak saw numerous travel bans, initially with China and then later across the globe. Not only did this affect China’s economy, but it also created uncertainty in other markets.
The response of markets to the Coronavirus outbreak1 is nothing new. History has shown us that markets have responded similarly to other viral outbreaks such as SARS and bird flu. And after a short period of disruption, the markets showed a recovery.
There is no reason to expect markets to won’t bounce back from the current pandemic, as they have in the past. The only difference is that it is still unclear how long the recent disruption will last.
You’re In It For The Long Haul
It can be unnerving to see your balance take a dip, especially if you haven’t seen your pension fund fall before. Keep in mind that pension losses due to coronavirus only lasted for a few months and short-term fluctuations seldom pose any real danger to your retirement fund – especially if you’re still a long way from retirement age.
Besides, most pension plans invest in a diversified portfolio2. This means your fund is invested in various assets – such as cash, shares, bonds and property – in markets across the globe.
What does this mean for you?
A diversified approach to investing helps to protect your savings fund from the full impact of disruption in the market while giving your money more opportunity to grow.
Ask your pension provider for a detailed breakdown of your investment plan and past performance, to give you an idea of how your savings will fair the long term.
A Few Common Questions
A good pension plan will invest your assets across a range of funds in markets across the globe. This diversified investment plan reduces risk and protects your interests, ensuring your pension fund will continue to grow.
While property can be a good investment, relying on it instead of a pension can be financially risky. This is because you’re dependent on the ever-changing property market, which could see the value of your investment dwindle in the event of a market crash. Most pensions offer a diversified investment portfolio, which lowers your investment risk. There are also various other benefits to pensions, such as tax relief programmes.
A pension fund’s performance should be evaluated on what has been lost or earned over the fund’s lifetime. If you’re focusing on short-term performance, downturns will BE more pronounced than if you view at them over a more extended period.
If you contribute to a defined contribution pension, your funds will be invested in the stock market to create growth over the long term. However, in the short-term, you may see your pension’s balance move up and down as the stock market does.
Any investment offers the risk that you could end up with less than the amount you invested. However, when it comes to long term savings, a balanced investment strategy will usually see you through the rises and falls of the market – you just have to be patient as you wait for your fund’s balance to recover.