Shaky investment returns

Carsten Holdum, PFA’s consumer economist

Following the handsome returns throughout 2015, 2016 began with sharply declining share markets. So, what steps should you take? Actually, you shouldn’t do anything. Pension is about the long-term perspective, PFA’s consumer economist explains and expresses cautious expectations of the return for the year.

Recent months have illustrated exactly why it is important to stay calm and take the long view when your savings are invested at market rate. Following a strong 2015, where PFA’s customers received returns of between 5.3 and 12.3 per cent, 2016 has experienced significant fluctuations on the financial markets from the onset, which has sent the return on pension savings tumbling.

Spoilt by favourable conditions

There is nothing unusual about the current situation as ups and downs are a natural part of the market rate environment. PFA’s consumer economist Carsten Holdum explains that, when it still seems frightening, it is because the instability follows in the wake of a long period with favourable conditions on the share markets.

“In recent years, the financial markets have been characterised by a continuous positive trend, and then it is easy to forget that periods of falling prices and losses are quite normal when investing savings at the market rate. It is not possible to create strong long-term returns and, at the same time, make sure that they remain stable. That is the very difference between investing in shares and bonds,” Carsten Holdum explains.

Do not change investment profile in midstream

Carsten Holdum adds that we probably have to get used to more fluctuations and lower returns for some time to come while the global economy is characterised by uncertain expectations of both China and the US. Therefore, it is important to stay calm and take the long view when the share prices drop.

“As investing in shares generally generates better long-term returns, the main rule is that you need to look at the long-term perspective and stay true to the investment profile you have selected. Generally, it is not a good idea to change to an investment profile with lower risk during bad times as it can be compared to selling shares when the markets are at a low.”

View your own return at My PFA

At My PFA, you can always view your own return, which, among other things, depends on the investment profile you have selected in PFA Plus and how far away you are from retirement.

As a starting point, you will see your 2016 return, which naturally reflects the historically turbulent start to the year. We recommend that you also check your return for 2015 or select a longer period in order to get an idea of your long-term return. You simply change the period in the date field.

 

The investment profiles in PFA Plus in brief

In PFA Plus, your investment risk and return potential depend on the investment profile you have selected. You can choose between profiles A, B, C and D, where A represents the lowest risk and the lowest return expectations, while D represents the highest risk and the highest return expectations.

In all the profiles, the risk will be reduced as you approach retirement, where you are typically less willing to take risks and need more financial security and stability.