Once you realize that your pension account is essentially an investment account that you can’t touch, you’ll never look at your finances the same way again. I often take this knowledge for granted and only recently noticed that not many people know how their pension account functions.

Clients tell me all the time, “I don’t have the stomach for investing; I’m not an investor,” to which I always reply, “Do you have a pension? If you do, you’re already an investor!” This is usually followed by a look of panic as the realization hits, then a flurry of questions about hot-button news headlines.

We talk about savings accounts, checking accounts, time deposits (a.k.a. certificate of deposit accounts), and investment accounts. We know we need to have a pension account by law, but for many it’s just a mandatory deduction from their payroll that will aid them financially in retirement – few people like to get into the details about how it works.

The investment market is a living and breathing organism. It ebbs and flows in cycles and has its mood swings just like the teenager that may or may not be living in your house. It’s a natural response to be nervous about investing, especially when inundated with all the doom and gloom on the news. However, when it comes to investing, it’s often better to learn when to put on horse blinders and focus on the endgame instead.

Remember, your pension account is a long-term commitment. It will stay with you throughout your whole life once it’s started. Volatility and market swings are part of its life cycle. The good news is, black swan events like the COVID-19 pandemic and the 2008 financial crisis are few and far between. By following these tips, there are ways you can build a long-term investment plan that will weather any storm:

  1. Ignore short-term volatility and stay the course
    Put on those horse blinders. Our funds are best of breed and well diversified thus mitigating volatility in the market. There is no need to change your allocations every time the market has a tantrum. Developing a long-term strategy and having the mental stamina to stick to it is the best thing anyone can do.
  2. Spread out your risk by dollar cost averaging
    Dollar cost averaging is where you commit to investing into your chosen investment strategy at regular intervals in regular amounts over time no matter what the cost per unit is. This method smooths out price fluctuations over time and the cost per unit averages out. For example, the monthly allocations that take place in your pension fund dollar cost averages naturally. Contributing regularly to your voluntary pension on top of your mandatory contributions, or adding more to your voluntary contributions, enables you to average out volatility even quicker.
  3. Buy good investments at a good price
    Market volatility can be an opportunity to invest at a discount in good companies that you believe will perform well over time. Before selecting your investments for your pension fund, do your due diligence and only invest in funds that you believe have true potential for upside. It’s important that you focus more on long-term growth and that your investment strategy meets your time horizon (i.e., that your risk tolerance matches the time left till you retire). By having a solid plan in place and a line-up of investments you believe in, dollar cost averaging into those investments on our end is a breeze.
  4. Get advice
    If market volatility is causing you some sleepless nights, consider coming in and having a chat about your risk tolerance and current pension selection. Your pension advisor can help you develop strategies to weather the ups and downs more comfortably. You don’t have to do everything on your own; at Freisenbruch, we are here every step of the way.

The value of your pension will change over time. While this fluctuation is inevitable, it can be alarming if you aren’t prepared. A well-designed retirement plan and regular educational sessions can help you be ready for the normal ups and downs, ensuring you feel comfortable and in control of your pension and can look forward to your retirement.

To learn more, or if you have any questions, please contact Melanie Gauntlett, Financial Pensions Advisor at Freisenbruch, at mgauntlett@fmgroup.bm, or call +1 441 294 4660 or +1 441 296 3600.