You will not have failed to notice that there has been a great deal of volatility in the financial markets. The spread of the coronavirus has led to radical measures being imposed throughout the world. The whole economy is feeling the effects of this. These measures, and uncertainty regarding the further effects of the coronavirus, are causing huge fluctuations in the financial markets. How will this affect your pension?
Your pension capital is invested on a diversified basis
It is an important principle for the investment of your pension capital that your investments are diversified. We invest throughout the world in numerous companies, sectors and investment categories such as equities and bonds. Not every investment is affected to the same extent by the current volatility. This means that we avoid a situation in which a price fall or bankruptcy of any single company can have a serious effect on the value of your investments. This diversification limits your risk.
Reducing risk as you get older
The risk of your investments is automatically reduced as you get older. If you are still young, there will be enough time for you to make up for sharp falls in prices. This is not the case if you are older. In this case we put your money in less risky investments that will be less affected by sudden large price declines.
Your pension capital is invested for the long term. It is inevitable that there will be periods of high price volatility. We know that such periods happen, but we do not know when. It is however known from historical analysis that investing in the long term always produces better results than saving, for example. We also know that regularly and accurately timing periods of price declines and subsequent recoveries is extremely difficult. So it is important when investing for a pension to keep a long-term horizon in mind.
We are convinced that the principles outlined above are correct. Periods of high volatility happen. The idea that one should take action now and sell some investments might seem appealing, but the principles we apply have been specifically formulated for both good and bad times and therefore we should stick to them in the current situation as well. Keeping a cool head in difficult times is the best that we can do.