Moving Pension out of shares

Fiachra2

Part of my pension fund is in a managed fund which has lost some value over the last year. I am considering moving it into cash or with profit for a period until there is clear evidence of a recovery in the markets. My pension broker is advising against this. His argument is that by moving the fund I am crystalising the losses and limiting my chances of regaining the value lost. My logic is that, as the markest have fallen significantly ,it is not unreasonable to expect a significant recovery in the future. When that recovery starts I can re-enter the field. I will, of course, have lost out on the gains made in the early stages of the recovery.
Decisions such as this are in part based on sentiment and I am a risk averse person who would rather avoid any further losses in a market that continues to fall. However is there any mathematical/statistical error in the approach I am proposing to adopt?

woodseb

it really depends on your age and how long you have till you draw down....

of course it makes sense to switch out of equities to protect against loss but it's only really useful in hindsight. i think its too late to consider such action in the light on the long term nature of a pension investment. market fluctuations like this are not that usual and you should only start consdering a change in strategy in your later years to protect your investment

Time Magazine

Fiachra2 wrote: »

My logic is that, as the markest have fallen significantly ,it is not unreasonable to expect a significant recovery in the future. When that recovery starts I can re-enter the field.

So your logic is that you're going to sell what you currently own for €1 and buy it back when it's €1.20 in the hope it reaches €1.30? A better idea is to wait until they reach €1.20 and decide whether you're willing to risk them reaching €1.30 or not.

If you don't need the funds now and you can wait a few years, close your eyes and forget that prices were as high as they were a couple of years ago. Without that benchmark, "it is not unreasonable to expect a significant" growth in the value of your portfolio over the next few years.

Fiachra2

woodseb wrote: »

it really depends on your age and how long you have till you draw down....

of course it makes sense to switch out of equities to protect against loss but it's only really useful in hindsight. i think its too late to consider such action in the light on the long term nature of a pension investment. market fluctuations like this are not that usual and you should only start consdering a change in strategy in your later years to protect your investment

I have 12 years to retirement so I do have time on my side. I take your point about acting to late. I would have been better to have done this 6 months ago. But does that not presume that markest do not continue to fall?

If the worst is over and markets are set to rise then my proposed course of action will cause me to loose out on some gains. However by pulling out into say cash I can:
remove the risk of further losses
Be assured of some modest growth
be free to reenter a healthier equities market in the future

Fiachra2

Antithetic wrote: »

So your logic is that you're going to sell what you currently own for €1 and buy it back when it's €1.20 in the hope it reaches €1.30? A better idea is to wait until they reach €1.20 and decide whether you're willing to risk them reaching €1.30 or not.

.

I understand your logic if it were applied to a block of shares in say the banks which I had bought some time ago. If I am to operate on the basis that they will grow and some time then it makes no sense to sell now and buy back after they have started to grow. However I am looking at it from a different (and possibly incorect) perspective. I am assuming that my pension is not simply a portfolio of shares effectivly "sitting there".

I assume that the fund managers have a fund of X value (the value of my conrtibutions plus growth to date less losses of recent months) which they are using to periodically buy and sell stocks and hence grow the value of the fund. If the market falls by another 20% and they cant outguess the market then the fund available to them is 80% of X. Therefore they now have a much smaller fund to work with.

If I move to cash now then my fund retains its present value and indeed grows somewhat. At some point when the market is no longer falling I can then pass the fund (which is now X+a small percentage as opposed to 80%of X) back to the fund managers.

A Random Walk

Fiachra2 wrote: »

At some point when the market is no longer falling I can then pass the fund (which is now X+a small percentage as opposed to 80%of X) back to the fund managers.

There's your problem. You can't predict when this point is. The market rises and falls continuously, if you wait until you see "clear evidence of a rising market" what you're talking about doing is selling at the bottom and buying at the top.