Why I will not contribute to a pension (yet). THREAD BANS IN FIRST POST

Hawkeye123

I think pension fund managers are mistaken in their belief that government bonds are a good buy.

It is my belief that inflation will stay higher for longer and may even increase further in the medium to long term (that is assuming it doesn't increase in the short term as well).

So, the rather pathetic rates being offered (and that have been offered) on bonds sold by the government will result in losses to the pension funds in my opinion.

A little time should suffice to prove me right or wrong. Meanwhile, I won't contribute to a pension. I will watch and wait.

THREAD BANS:

@Hawkeye123

Padre_Pio

You can choose not to have your pension invested in government bonds.

The real benefit to pensions is the tax free contributions and withdrawal, which is much better than any other investment opportunity now.

Hawkeye123

https://www.boards.ie/discussion/comment/121664382#Comment_121664382

Yes but at the end of the day, payment will be in fiat currency. If a cbdc is introduced, it will potentially not even be that. Also, if Michael Burry is right, stocks are a big no no too.

berocca2016

https://www.boards.ie/discussion/comment/121664475#Comment_121664475

You’re talking about relative value losses rather than absolute capital losses which are two completely different things.

if the CBDC is equivalent to the Euro, how will this cause an issue to pension funds ?

smacl

https://www.boards.ie/discussion/comment/121664382#Comment_121664382

This. Also the earlier you start, the better the final result. Even after taxes, money in the bank is depreciating relative to inflation, so a pension fund is a great asset if you're willing to wait long enough to see the return.

kippy

Surely putting anything into a pension, making sure that pension is in really really low risk funds (if in any funds at all) is benefical purely for the taxation element of it? Easy money no?

ELM327

https://www.boards.ie/discussion/comment/121664697#Comment_121664697

Once you have low risk but enough risk to "ensure" you cover inflation, and enough investment to cover your expenses on retirement, yes.

Jim2007

https://www.boards.ie/discussion/2058333013/why-i-will-not-contribute-to-a-pension-yet

A couple of things to keep in mind, when it comes to the research:

• Over the long run portfolio construction and asset allocation with be the major factor in determining the return on a portfolio
• Portfolios that have a predominant equity asset allocation still benefit from have a low asset allocations in bonds, property etc.
• Time spent in the market impacts the long term return
• Market timing is a fools game
• You are ignoring the tax breaks
• Are you leaving free money on the table?

When it comes to talking heads like Michael Burry, you'd do well to just ignore them. They are in the hedge fund sector and their public utterances are very rarely done to do anything other than talk up or down whatever strategy they are trying to execute in the market. It certainly is not to make you rich.

You are basically intend on following the failed strategy of market timing and the thing is you will not know for decades if your approach will fail or not. Pension fund managers are playing the long game, which is exactly what they should be doing, but at the end of the day it is your money and in my experience it's a fools errant to waste time trying to convince a client to doing anything other than that which they are hell bent on doing.

Padre_Pio

https://www.boards.ie/discussion/comment/121664475#Comment_121664475

There are two "if"s in your comment and no data to back either.

I know where I want to put my pension money.

Hawkeye123

https://www.boards.ie/discussion/comment/121665200#Comment_121665200

Yes I did say "IF Michael Burry is right .... " The alternative of course being IF he is wrong, so you have a few IFs of your own.

Come to think of it, the same can be said of the possible introduction of a CBDC, so data or no data, you are matching me If for If.

Hawkeye123

https://www.boards.ie/discussion/comment/121664631#Comment_121664631

Yes relative losses are different to capital losses. What matters to me is what I can buy with what I get, the figure is of no consequence whatsoever.

The trouble with CBDCs is the government has total control. What if we have a bad government?

Peregrinus

https://www.boards.ie/discussion/comment/121664475#Comment_121664475

Well, you're putting fiat currency in; makes sense that you will get fiat currency out.

But you don't have to invest in fiat currency. Currency is just the medium of exchange by which you put value into the pension fund, and by which, in due course, you will take value out. While your money is in the pension fund, you don't have to invest in currency; you can invest it in any asset class you like, so long as that's an investment which a pension fund is permitted to make. If the currency depreciates in the meantime, that's not a problem, because your investment will hold its value.

You don't like government bonds as an asset class and, it seems, you don't like equities. But the important question is not what you don't like; it's what you do like. What investments do you want to make?

If the answer is, you don't want to make any investments at all, then obviously the question of whether to use a pension fund or not doesn't arise.

If the answer is, you want to invest in something that an Irish pension fund cannot invest in — e.g. you want to invest in a drug smuggling enterprise; you want to invest by lending all the money to the company that employs you/that you own — or you want to invest in something so off-the-wall that no pension fund is willing to accommodate you, then that would be a good reason for not making your investment through a pension fund.

But, other than that, if you want to invest money, and you are unbothered by the restrictions associated with pension funds (mainly, on when you can get your investment out) then you would need some good reason for not using a pension fund, given the tax advantages involved.

Hawkeye123

Yes but then there is the trust issue. I once made an investment via a pillar bank and was told the principle was 100% guaranteed but later found out they lied to me about that.

If I say I want to invest in commodities, how can I trust them?

Peregrinus

https://www.boards.ie/discussion/comment/121668780#Comment_121668780

Short of having the gold/wheat/frozen concentrated orange juice delivered to your house so you can hide it under your own bed, if you want to invest in commodities (or, indeed, almost anything else) you're going to have to trust someone, and probably multiple people. Investment markets operate on trust and credit; if you don't have confidence in that, investment is not for you. Maybe you should just buy land with your money? But you'll still have to trust the land registry.

I think you have to start making some judgments about risk. All investment involves risk, obviously, and among those risks is the risk of dishonesty. Dishonesty is shocking but, in the scale of things, this is a minor risk compared to others that investors face. Some amount of money has been lost by investors who have been victims of dishonesty, but it's roundings of a fraction of a percent compared to the amount of money that investors have lost through adverse asset value movements. It's not entirely rational to be willing to face the greater risk but to baulk at the lesser risk.

That's not to say that you just ignore the risk of dishonesty. You can minimise it by, e.g., investing through regulated markets and using investment mechanisms that are backed by guarantee schemes. Of course, not all investments can be made this way, in which case you may have to weigh up making your first-choice investment using unregulated intermediaries of uncertain reputation, or making your second-choice investment in a more regulated environment. Only you can make that trade-off for yourself.

Jim2007

https://www.boards.ie/discussion/comment/121668635#Comment_121668635

Crypto is a kind of a funny religion, even by the standards of say BREXIT or MEGA:

• They advocate for a digital currency because it can be controlled by the governments
• They are concerned that governments could actually control the currency at the same time
• They confuse speculating in a currency with investing in the underlying technology
• They believe the currency is easily convertible despite the fact you can't by as much as a box matches the the kiosk with it
• They see it's automation as a benefit, while ignoring the fact it facilities runs on the currency at a rate no one has seen before
• They ignore what economic history has though us over the last couple of centuries in arguing for an unregulated currency as if it was never done before
• And of course you must believe, if you do it makes sense

This might come as a shock to you, but we fully expect that there will be corruption and abuse in politics and government. That is why our constitution adheres to the tradition of the separation of powers and goes one step further than most other western democracies by making parliament subject to the people. And the assumption of corruption runs through the monetary policies of most of the western world as well, it why we require central banks to be independent of the government to try and minimise the possibility of a government being able to manipulate a currency.

Your fears are just not grounded in reality.

Geuze

If you have many years to retirement, you should not be holding any bonds in the pension plan.

Jim2007

https://www.boards.ie/discussion/comment/121668780#Comment_121668780

They did not lie to you, you did not understand the product you were investing in and that is entirely on you. There are plenty of guaranteed principle products out there and just as many articles explain the pearls of investing in such products - do you not read some of these???

I very much doubt that there are more than a handful of people on here that I would advise to invest in commodities for two reasons their portfolios are below 5 million Euro so would not benefit from taking on such risk and because they don't know remotely enough about how that market works.

AndrewJRenko

https://www.boards.ie/discussion/comment/121668780#Comment_121668780

Was the 100% guarantee in writing?

Jim2007

https://www.boards.ie/discussion/comment/121669972#Comment_121669972

Check out askaboutmoey.com, there were several discussions on these products over there, although for some reason I have never seen a discussion on here. And as Bill Clinton would say: it depends on what you mean by guarantee, principle and return... I don't remember all the ins and outs of these products, but I think when you brush back all the legal mumbo jumbo, what is guaranteed is you get back an amount equivalent to what you put in most cases and the product is structured so that principle + return should alway at least equal the amount invested. And that is pretty much what people got back after a five year period! But I'm open to correction on this as it is a very long time ago since I looked at it and even then I was not very concerned about it as I could not sell such a product over here.

Hawkeye123

https://www.boards.ie/discussion/comment/121668822#Comment_121668822

But what if the regulated market is highly risky? Remember the Financial Regulator? It didn`t regulate and the IMF had to bail the country out.

Hawkeye123

https://www.boards.ie/discussion/comment/121669097#Comment_121669097

I agree with everything you say about cryptos. That is a not something I would speculate on.

Any separation of powers in this country is subverted by conflicts of interests. The politicians and judges have pay grades which are linked. This is why politicians say the judges are doing a wonderful job. When the judge gets a pay rise, the politician`s pay rise won`t be far behind. I don`t think judges are doing a particularly good job and a lot of people think they are a corrupt cabal, out only to protect the system, look after their buddies in politics and line their own pockets. Corruption being the guarantor of success in our system. I don`t necessarily agree with that but neither am I in any position to refute it.

Hawkeye123

https://www.boards.ie/discussion/comment/121669147#Comment_121669147

And bonds have always been considdered a safer option in pension plans for those about to retire. My point being, that safety is now questionable if long term inflation is higher than the interest being paid on the bonds. And, if the situation becomes critical, can young contributors be sure their pension contributions are not being used to pay for mistakes previously made by the pension funds?

Danny Drier

https://www.boards.ie/discussion/comment/121673864#Comment_121673864

You sound like a conspiracy nut tbh and there’s no talking to you. Enjoy an impoverished old age shouting at the clouds and blaming the seagulls for your predicament

Hawkeye123

https://www.boards.ie/discussion/comment/121669162#Comment_121669162

I don`t recall you being in the room when they lied to me.

Padre_Pio

There's no investment without risk, and that risk includes market volatility, corruption, government interference etc etc etc. which you seem to be very worried about.

But historically the market has performed well in spite of this. Unless you have some evidence to support your beliefs I would be inclined to ignore them and focus on what can be proven using historical data.

As you said, you believe pensions will underperform. Maybe, but the tax benefits will likely outweigh that underperformance significantly.

At the end of the day its your money, feel free to do whatever you want with it.

Hawkeye123

I think it would be wise to wait for an economic reset, such a major recession before investing in a pension. At least that way, any bad investments the pension funds have made will come to fruition and they will then be better placed to make wiser decisions in future.

greyday

https://www.boards.ie/discussion/comment/121673971#Comment_121673971

You are happy to lose out on 40% free money while you wait to try and time the market?

Is there anyone sensible you could talk to?

Jim_Hodge

https://www.boards.ie/discussion/comment/121673971#Comment_121673971

It's your loss but I'd suggest you talk to somebody who actually understands investments and pensions.

Peregrinus

https://www.boards.ie/discussion/comment/121673858#Comment_121673858

If regulated markets are highly risky, unregulated markets will be riskier still. If you have no appetite for risk, don't invest.

https://www.boards.ie/discussion/comment/121673971#Comment_121673971

I think there's a category error here. "Pensions" aren't class of investment on their own. They're a way of making investments in the same assets that you could invest in outside a pension, but with particular tax treatment and particular restrictions on access.

If you think it would "be wise to wait for an economic reset, such as a major recession, before investing" then that judgement would hold equally for investments made via pension funds, and investments not made via pension funds. In short, if that's your view, it would be wise to wait before making any investment at all.

Trigger Happy

OP - maybe pensions are not for you if you have major trust issues.

Or maybe do some proper research and get a meaningful understanding of what you are investing in next time and how they work? Having your pension invested in government bonds is really stupid unless you are very close to retirement or have knowledge of a pending global economic catastrophe.

Jim2007

https://www.boards.ie/discussion/comment/121669147#Comment_121669147

That is not the case. As I have already said, the majority of your return over the long haul will depend on portfolio construction and asset allocation. And the research is there to show the portfolios that are strongly skewed towards equities still perform better when they a certain amount allocated to other asset classes. And in a way this should not be surprising since there will always be times when a given asset class will be out of favour.

Jim2007

https://www.boards.ie/discussion/comment/121673858#Comment_121673858

This is a complete misrepresentation of the facts. When you are making investment decisions you need to park attitude, opinions and the views of the talking heads at the doorstep because if you don't, you may end up making a expensive decision.

Jim2007

https://www.boards.ie/discussion/comment/121673869#Comment_121673869

It does not matter that I was not in the room, every post you have put up here tells me you don't understand this game. And of course it is much easier to claim they lied to you rather than learning the lesson - you did not understand the product, you did not do your research and you did not manage the investment and you paid the price. This is the same approach may of the people who go badly burned back in the last crash come up with - it was banks, it was the government, the bond holders and the IMF, never the fact that they went against every investing principle out there by borrowing to invest, investing in a high risk asset class (property), failed to diversify the risk and so on. And now having not learned the lesson, many will repeat the experience.

You are doing the exact same now with pensions as you did with that "principle guaranteed" stuff and you can expect the same outcome unless you press the pause button and go learn properly about investing and that includes not only instrument selection, but portfolio construction, performance and attribution and risk analysis and so on.

Jim2007

https://www.boards.ie/discussion/comment/121673971#Comment_121673971

Please do post the links to your research that led to this conclusion...

Jim2007

https://www.boards.ie/discussion/comment/121674068#Comment_121674068

Yah, in my experience that is not going to happen... I only post here in the hope that at least a few of those stumbling in to the topic will be motivated to either put the time into learning about investing themselves or will decide to consult a professional instead.

Hawkeye123

https://www.boards.ie/discussion/comment/121674113#Comment_121674113

Not investing is nearly impossible. Merely leaving money on deposit in a bank is an investment. Admittedly that is both bad and risky as an investment but there are safe alternatives to pensions, until the pensions themselves are worth the risk.

Hawkeye123

https://www.boards.ie/discussion/comment/121674145#Comment_121674145

But in saying that, you are basically saying it is not stupid to invest in government bonds if you are close to retirement and you do have knowledge of an impending economic catastrophe. My concern is inflation. If it rises higher than the low rates of interest being paid on bonds, the purchasing power of the fund will diminish. Institutional investors are still buying government bonds. This puts the pensions industry itself in jeopardy.

Jim2007

https://www.boards.ie/discussion/comment/121674490#Comment_121674490

So lets have your examples of investments at are "safe alternatives to pensions" then? Because up to now you have been arguing for timing the market...

Hawkeye123

https://www.boards.ie/discussion/comment/121674257#Comment_121674257

They did let slip a year or so after I made this investment that the principle could go down. At the time, I was up about about 5%. I exited the investment immediately. The fact that it was up was not a reason to continue with it. I did not want to risk my original investment.

Jim2007

https://www.boards.ie/discussion/comment/121674643#Comment_121674643

This is stated in the documentation. Mod warning: We are now done with the conspiracy theory stuff, do not post any more of it.

This thread seems to have run it's course. I will leave it open for awhile, to allow you to post links to the statements up made up above, if you feel like doing that.

AndrewJRenko

https://www.boards.ie/discussion/comment/121673869#Comment_121673869

So you got a verbal promise that wasn't in the contract?

Geuze

https://www.boards.ie/discussion/2058333013/why-i-will-not-contribute-to-a-pension-yet

Auto-enrolment is happening soon, so you might be automatically enrolled in a pension plan.

Of course, within the plan, you can choose to avoid bonds.

Jim2007

https://www.boards.ie/discussion/comment/121675026#Comment_121675026

I would hope that when it does come it will be very strictly regulated and people will not be allowed to play around with the investment strategy. Saving for retirement is a shared social responsibility, if we don't ensure people save enough for retirement, they will want a slice of our savings when the time comes. And as the population ages there may well be enough voters in that situation for it go through. For instance in March we (Switzerland) will vote on an initiative to make pensioners a 1"3th month" pension payment. They found the required 100k signatures to kick this off and now it looks like about 61% of the voters support it. So social tax rates are likely to go up next year.

Hawkeye123

https://www.boards.ie/discussion/comment/121675026#Comment_121675026

Indeed but it would not surprise me if the true purpose of the auto enrolment plan was not concern for tomorrows pensioners but for today`s day to day spending by the government. In fact, it may well be stipulated that a certain percentage of these contributions must be invested in government bonds and that money will be promptly squandered, just like everything else the government spends our money on.

Geuze

https://www.boards.ie/discussion/comment/121679102#Comment_121679102

https://www.gov.ie/pdf/?file=https://assets.gov.ie/219768/4aada71d-2731-4522-b218-9184a699652f.pdf#page=null

Your fears are unfounded.

purpleshoe

https://www.boards.ie/discussion/comment/121673971#Comment_121673971

Have not gone through the thread from start to finish, bet others have flagged this.

if you are in the higher tax bracket (40%) this is most certainly the wrong train of though…a big misstep.

if you are contributing in the higher tax bracket, every contribution made immediately sees a 66.66% return. That is before your pension does anything. Markets would need to implode for you to only break even.

Note: in the higher tax bracket, for every 100e you add to your pension, it only costs you 60e. So a 60e investment results in an immediate 40e return. Please pause to understand this, and if you don’t understand (no problem there) just please please ask to clarify.

Jim_Hodge

https://www.boards.ie/discussion/comment/121708995#Comment_121708995

He can't ask. See post #1

purpleshoe

^ Post more so for others reading through the thread.

Happyhouse22

https://www.boards.ie/discussion/comment/121708995#Comment_121708995

Thanks, never thought of it as an immediate 66.6% return- but your logic makes sense.

The J Stands for Jay

If a person did believe it wasn't a good time to invest, a pension can still provide a cash fund or deposit options to at least benefit from the tax relief.

amacca

https://www.boards.ie/discussion/comment/121715551#Comment_121715551

And it's a persuasive argument in fairness

However there is potential opportunity cost at certain points in life for some people....in this country not securing a house to live in due to funding pension could well be more costly than the return you get...

Similarly some investment options could be out of reach later in life if the money you might have used to fund them earlier in life is in a pension...even if you get compounded gains on top of your 66% return the way some assets have been appreciating.....by the same token your pension lump sum could buy you a lot more of those assets if they drop in price...as long as you are OK with buying them later in life

All things being equal, once the PPR is secured then funding a pension seems a no brainer for the majority of people......if homes were more available and rental less mental then it would be true even earlier in life.