FTSE offers no path to 'Golden Years'

By Ed Emerson

Monday 10 October 2011

A new report by PricewaterhouseCoopers has revealed private pensions for those retiring this year have lost a third of their value compared to those who finished work three years ago.

The firm also suggests stock market turmoil and record low interest rates are to blame for the overall 30% loss on the value of private pensions.

All the while the Bank of England is seeking to resume its erstwhile quantitative easing programme by injecting another £75bn into the economy.

And in all too typical fashion commentators and researchers alike point to the FTSE as the barometer, the miscast protagonist in a bad investment drama, which has fallen by some 15% since May, severely cutting the value of many workers' private pensions schemes.

And therein lays the rub.

Why do we continue to believe that the FTSE is a good long-term pension performance idea simply because it is comprised of the biggest companies?

Have we not yet come to grips with the idea that; when it comes to investment, bigger isn't always better.

Certainly it could be argued that smaller firms have greater exposure to risk in recessions, but similarly offer good potential rewards.

By example, funds invested in smaller companies last year trounced their bigger rivals, posting a 31% profit, while the FTSE grew by 12.6% in the same period.

And what about this year and its extremely volatile set market conditions?

Smaller companies have fared comparably well against their larger counterparts, losing 7.9% overall against a 9% drop across the FTSE 100.

Yet despite the quantitative facts just £8bn sits in UK smaller companies versus nearly £600bn in unit trusts.

A pension is an opportunity to have clever folks with good track records, a 'world class team', assemble the best risk-to-reward profile designed to achieve what you want for your retirement and not simply an excuse to yet again track the FTSE Index.

Those who learn that lesson will see a lot more gold in their golden years'.

This article is the personal view of Ed Emerson. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.

Monday 10 October 2011