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Billions wiped off YOUR pension!

Ok that might be an exaggeration, but it’s not too dissimilar to some of the headlines we’ve read recently. 

Don’t worry, billions have not been wiped off the value of your pension, but there have been plenty of scary statements in BOLD PRINT AND BLOCK CAPITALS following the recent drop in markets. 

Here are a selection: 

“Black Monday: Stock market meltdown wipes billions off global indices as China fears decimate investors” said the relatively calm Telegraph. 

“China fears wipe quarter of a trillion euros off Europe’s blue chips” said that well-known purveyor of sensible market comment, the Daily Star. 

“Millions wiped off British pensions as FTSE 100 loses £60bn in just hours”, panicked the Express. 

I have a major problem with headlines like this. Firstly, the numbers don’t make any sense without context. How big is £60bn relative to the FTSE 100? It sounds a big scary number 

However, the top five companies in the index are all bigger than £60bn on their own. The biggest, HSBC had a market cap of over £100bn at 31 August 2015. 

The top 100 companies that make up the FTSE are worth around £2000bn. Saying £60bn was wiped off the market is a scary way of saying the market is down 3%. It’s a big move in one day, but it’s not going to bankrupt anyone. 

As I write, the FTSE 100 is today up 2.20% (at 2pm on 9 September). My quick calculation says that this has added £44bn to the FTSE today. Where are the headlines screaming “Billions wiped ON to your pension?” 

Incidentally, the Nikkei in Japan was up 7.7% last night. That’s somewhere in the region of £200bn added to the market. Positive returns like this unfortunately don’t make for good headlines. 

Which brings me to my next point. Very few (sensible) investors invest in just one region of the stockmarket. At Equilibrium we invest in multiple market sectors and regions, and a number of othernon-equity asset classes. Some stockmarket sectors have lost far less than the FTSE 100, and other asset classes have actually made money. 

For example, in equities the FTSE Small Cap Index (ex investment trusts) is only down 0.88% over a month (to 8 September, dividends reinvested) whereas the FTSE 100 is down 7.92% over the same period. The small cap index is actually up over 7% over 6 months whilst the FTSE 100 is down around 9%. 

Also in the past month gilts made money, as did most property funds and many “alternative” funds. For example, our “alternative equity” mix of funds, most of whom badge themselves “absolute return” funds, made 1.17%. Not shoot the lights out stuff for sure, but pretty good relative to the almost 8% fall in the FTSE. 

Of course any investor who has anything in equities will not be immune to the ups and downs of the market. However, a sensible mix of assets can mitigate losses when they do occur (which they inevitably will). It also means that we have other assets we can switch into markets after they drop, which means we can benefit if and when equities rebound. 


The information provided through the Equilibrium website based on our opinion and is for general information purposes only. It is not, and should not be construed as financial advice.