24th January 2017 at 2:45pm
In a follow-up to Tips for planning your finances in your 40s, one of our Money Plus colleagues follows through on her resolution to review her pension investments.
How often should you review your pension investments to find out how they are doing?
With my day-to-day finances in reasonable shape, I vowed in my last blog – where I shared my efforts to get my finances in shape following divorce and redundancy – to take a closer look at my pensions in 2017.
There are good reasons to make sure I save enough for a decent retirement income.
Primarily, I don’t want to be working when I am 70 or relying on the State Pension coming my way. Recently the government has increased the age of entitlement and speculation suggests that trend may continue.
Importantly, I have plans, including seeing a lot more of the world when the children have flown the nest.
2017: time to review – and act
I looked at what I’d built up across my pensions, and they have been performing pretty well. The total at the end of 2016 was well past the initial six-figure target I’d set myself a few years ago. Good news.
But, after research on a couple of websites – remarkably quick and easy – I worked out what I might be able to save by the time I am ready to access my pension in 15 years. It was clearly not going to be enough.
Those global travel plans could turn to dust.
Not saving enough: what’s the answer?
To start with, I increased how much I contribute each month, helped by tax relief which tops it up.
But I needed to make my pension savings work as hard as possible and that meant taking a closer look at where my pension is invested.
Investment performance is pivotal
It’s clear to me that the performance of my investments matters hugely. (I’m talking specifically about my pension investments here, as I don’t have ISAs.)
Looking at their performance over the short, medium and longer-term, I saw one was giving impressive returns, others were close behind. One specialist fund had been performing negatively for some time and had a higher than usual management charge which my provider had alerted me to.
The higher-risk funds were doing better, and had done over the past five years, in some cases generating double-digit returns for me, year on year.
What’s my strategy to boost my returns?
I am clearly not an investment expert (I leave that to my investment colleagues), much as I have worked in financial services for decades and have a decent level of knowledge.
I don’t have an adviser to call on either, although friends swear to the difference they can make and I plan to take advice at some point.
With a longish time frame of 15 years to keep building my pension, I decided (after careful thought) to be less cautious with my fund choices. I opted to move my money out of the lower-risk ones into higher-risk options so that I get more potential for growth, although I’m aware that these are more likely to suddenly fall or rise in value.
I also moved my money out of the higher-charge, specialist fund which has not performed as well as I hoped.
How do I decide where to switch my funds to?
With thousands of funds to choose from and an admitted lack of real expertise and spare time, I chose ready-made options instead, preferring to leave the fund management to the experts.
The ones I chose are higher risk, but they are managed to produce the best possible returns for their risk level and I’m confident they won’t take on more risk than I’m happy with.
And while I can’t rely on their past performance, I hope they will be the solution I need for the next few years.
Results show early promise
So far, the results look good but it’s been a very short time frame. I’m fully aware that things can go down as well as up and I might get back less than I invested.
Investing is, of course, for the long term. I won’t be chopping and changing, but from now on I’ll follow the usual guidance to review my pension investments at least once a year, as well as all my finances.
It’s another part of the financial life lesson for me: it’s about taking control of my finances and keeping it simple.
And it’s another personal resolution ticked off.
Next up, I’ll be thinking about whether bringing my pensions together would benefit me. But that’s quite enough for now.
Views expressed are the writer’s personal opinion based on her circumstances in January 2017.
The information in this blog or any response to comments should not be regarded as financial advice.