You log in to check your pension value, and it’s dropped… Should you move your investments? It’s a question that tends to spike during market volatility, like we’ve seen recently. When markets dip, people wonder if they should sell their shares to avoid further losses. That instinct is called “de-risking.”
But while it might feel like a safer move, de-risking could crystallise any losses or hurt your long-term financial goals more than you realise. Let’s explain why and how to navigate market dips without losing your way.
What is de-risking?
In simple terms, de-risking means moving your pension investments away from higher-risk assets (like equities) and into lower-risk ones (like bonds or cash).
It can be a common strategy as people approach retirement. This automatic shift is often built into workplace pensions and is known as lifestyling, designed to gradually reduce exposure to risk as retirement nears. The idea is to protect your money from market swings when you’re close to needing to live off it.
However, life changes don’t always mean that de-risking is the best move. Sticking with your long-term strategy may be more beneficial: it’s important to differentiate between life changes that require adjustments to your investment strategy and emotion-driven, knee-jerk reactions to short-term market moves.
Why de-risking during a market downturn can backfire
When markets wobble, many investors panic and start moving to cash or money market funds in the hope of riding out the storm. And while cash feels safe, it comes with a hidden danger: inflation. Over time, inflation can eat away at what your money can buy, meaning that cash, while appearing stable, could lose value in real terms. Historically, cash returns have lagged behind inflation. That means by sitting in cash, you could lose value. While market risk may be temporarily off the table with cash, inflation could now quietly chip away at your wealth.
Trying to time the market can also backfire. Often, the biggest gains happen in just a handful of days, and if you’re sitting on the sidelines, waiting for “the right time” to get back in, you risk missing the rebound, which could drastically reduce your overall returns.
While downturns feel uncomfortable, history shows that markets recover, and often quite strongly. The challenge? Staying invested through the rough patches, so you’re still there when the upswing begins.
Level-headed strategies we use to help you stay on track
Review
We regularly assess your risk tolerance to help you build and maintain a long-term investment strategy that reflects your goals and time horizon. During downturns, emotional decisions can derail long-term progress; that’s why having a solid plan matters.
Diversify
Our well-diversified portfolios help cushion the impact of market ups and downs. By spreading investments across different industries and markets globally, we aim to reduce exposure to any single risk and help you stay on a steadier course.
Stay invested
It’s tough to see losses on paper. But pulling out at a low point often means locking in those losses for good. Staying in – and continuing to contribute if you can – keeps you on the path to long-term growth.
Our team plays a crucial role in hand-selecting funds from over 40,000 available on the market, using stringent criteria focused on stability, low cost, and consistent above-average performance.As we are independent, we’re free to search the whole market and only recommend leading fund managers and tailored portfolios that truly serve your best interests, both now and throughout the lifetime of your plan.
We all feel the pressure when markets fall. But remember: pensions are long-term investments. Investing is like climbing a mountain – some parts are steep, others feel endless, and sometimes you’re tempted to turn back. But reaching the top takes patience and persistence.
De-risking should be considered only when the time is right and is very much a reflection on your personal circumstances, timeframe and capacity for loss. Diversification is key, across a range of investments with different market capitalisations, regional focuses and asset classes helps to reduce overall risk, because the chances of widespread losses are less.
Staying focused during downturns isn’t just helpful, it’s essential. These moments offer a chance to pause, adjust your strategy, and prepare for the future.
What you do now matters a lot more than you might think, not just for your balance next year, but for your income decades from now.
You can book an appointment to speak to a consultant about ways to enhance your pension further.
Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
