Billions of pounds have been knocked off the value of pension funds in recent weeks. We give you some tips on what to do.
The stock market has fallen, what, 10% this past month? I don't even know exactly how much, and I don't really need to know.
You see, it isn't good for listed companies and it's not good for most fund managers. It's moderately good for stockbrokers (because it means more trading, at least in the short-term, and therefore more commission). But, for most Fools, me included, it's neither here nor there.
However, for a number of Fools it's either devastating or fantastic. Here are tips for all retirement savers, whatever your age or situation.
The nonchalant
Starting with what these falls mean for most of us, we should not be worried about the affect of falling stock markets on our pensions (or shares ISAs, for that matter). This is because, if we've been wise, we have invested our retirement fund in index-trackers. We also accept that the markets go up and down, but we can strongly expect to make a decent return in the long run.
My only tip to those of you in this position -- the same position as me -- is to stop watching share-price movements every day. It causes you unnecessary angst.
The losers
I hope not many of you have been affected like this but, if you're particularly close to retirement, maybe just a year or three away, and you're still heavily invested in the stock market, you could well be upset or anxious right now. Your pot may have shrunk considerably and you have little time to gain it back.
The first thing for you to do is to check how your pension pot stands now, and what sort of income this might give you. (You can look up current annuity -- pension income -- rates here. Remember that they may change by the time you retire.)
Now consider, is your pot still big enough today so that you'll get the retirement you wanted? If it is then my tip would be to get the hell out of the stock market now. Yes, the market might rebound and hit 7,000 by Christmas, but it might keep falling to 5,000 instead. If you've got all you need, and you don't need any more money, then you certainly don't need any more risks.
You could transfer your retirement savings to safe investment funds, such as bonds or cash. Your pension (or ISA) providers should offer these sorts of alternatives.
If your pot is just a little bit short of what you needed or wanted, you should consider transferring to bonds or cash funds too. These will pay you some interest, plus presumably you're still contributing to your retirement fund. Between those things it might make up the difference you need without the risks of the stock market.
If you want help working out the numbers to see if this will work, ask an anonymous question of our friendly Fools on the Pensions - Practical Problems board.
I'm sorry if you're way off what you think you need or want, but there are things you can still do. Firstly, you might need less than you think. You might get a better idea of what you need if you conduct the exercise in The Four-Step Guide To A Comfortable Retirement.
Secondly, and this answer is somewhat harsher, you should seriously consider working for longer. It might be that the market will recover by the time you planned to retire, but you should set your expectations for the worst now, or it might be very upsetting. Imagine you have to work for an additional five or more years. Then, if you later find you can retire earlier, that will be a very happy bonus.
The winners
In my opinion, the real winners are those who both have cash that's spare for investing and have many years to go to retirement. With a huge fall in the stock market to levels that are more consistent with autumn last year, if I had more cash to throw into my investments I would.
The next question you might ask is: 'What if I invest now and it falls further?'
What you're talking about is timing the market. The thing is, we don't know if it'll fall further. No one knows. Forecasting these things is little better than astrology. Ignore the soothsaying pundits!
All we can say with any kind of certainty is that shares just got a whole lot cheaper, but over the long term they will rise again. So if you buy today you're buying at roughly last autumn's prices.
However, if you invest all your spare cash now in one go then that's timing the market too. You're effectively saying it's the bottom. So to counter this we could take further our Foolish principles of ignorance-about-the-short-term-future.
Here's what you do: you split your extra investment money into 3-6 tranches, depending on how much money you've got. (If you have too little, there's no point splitting it.) You then invest one tranche a month until it's all invested. This way, you're not trying to time the low point and you're averaging it out.
If it falls further after that, even for another year or two, who cares? There's no point getting angsty because you failed to call the bottom. That would be pure luck anyway.
If this proves to be a very short-term blip and you don't get to invest all your money before the market recovers all the recent losses, at least you'll have got some extra money in first.
Finally, I'd just like to say that I'm not in any way predicting where the market is going in the short term. Did I mention that already? Because that would be quite foolish. (Note the lower-case 'f'.)
> Read The Fool's Guide To Pensions.