I though this would be some sorry tale of risky investments but this guy did nothing wrong and has been screwed by the system and pension fund managing twats.
It has always been the advice to put money into bonds at same percent as your age and lifestyle pensions would track that. In addition I know many final salary schemes have tried to reduce risk by going all in on bonds.
I never understood how this was valid with interest rates so low. Return was low and the only way interest rates could go was up. Why was it not obviously a bad idea? I kept 0% in bonds myself and only now am considering increasing it.
And this is why property prices will keep on rising.
People are going to see this, and if they’re old enough, they’ll take as much as possible out of their pension and buy a flat with a view to letting it out.
If they’re not old enough, they’ll put every spare penny into an ISA with a view to doing that as soon as they’ve got enough stashed away.
> ‘In the past it has always steadily increased. It would make sense if it was all invested in one stock, but I’m supposed to be in the safest fund possible.’
Ah but if you look at the factsheet you will see that it is all invested in one thing:
I think this is the key problem with how pensions are currently structured. People are held responsible for investing decisions they are not adequately equipped to make.
Shocking-how on earth do savers and pension fund trustees expect to increase the asset yield with interest rates having flatlined since 2008 (until recently), and the Bank of England printing £1Tn through QE? The Banks have access to free money, don’t need to pay any return, and those with cash to spare reallocate your more lucrative ventures such as property.
Bonds are fine if you hold to maturity. Bond funds that are marked to market are obviously not, their value changes daily on the secondary markets. They are as risky as an equity fund in that respect.
These people have been failed by financial advisors who conflate HTM bonds and MTM bond funds. It’s appalling.
Liz truss / Boris (liar) Johnson and rishi the idiot should take a large slice of responsibility
It’s awful, but bonds are a risky investment and not fully safe, especially 18 months from retirement. The problem is, we try to make things like this accessible to people but they don’t understand what they’re actually invested in. **Bond funds and individual bonds aren’t the same thing**.
– An individual bond is like an IOU. A company wants to borrow money, they say in X number of months / years I’ll pay you £100 (and maybe a small fee every year, like interest). It’s similar to a loan in that way, except in this scenario you’re the lender. **Once you own it, you can hold this until the X number of months are over, and get all the cash back**.
– The current market decides how much they think that it’s worth… factors are: Is the company likely to bankrupt? If you might not get your money back, you want money for that risk. What’s the price for similar companies?
– For example, if you can get 4% interest rate putting your money in a bank, then most people might want 5% if they were buying a bond. So, for a 2 year bond, giving £100 at the end, someone would happily pay £90.70 for that as £90.70 * 1.05 * 1.05 = £100.
– NOW, let’s say for some reason, you need the money before the 2 years are up, so there’s 1 year left on your bond. You want to sell it and a buyer would probably want the same return, so £100 / 1.05 =£95.24. HOWEVER, in that time, let’s pretend interest rates rocketed and are now 9% at a bank, so the other person wants 10% from a bond. Now, that means you would only get £90.91 for your old bond… **you’ve lost £4.33**.
– Note: If interests rates go up, the bond value goes down.
In most scenarios, you don’t really plan to sell the bonds so the example losses above mean nothing. You will just get the cash that you agreed at the start. **However**, a bond fund you DON’T have that choice. Your pot size has decreased because you’re not buying individual bonds, you’re just pooling your money together and there’s a whole bunch of bonds over the place.
Essentially though, you’re always priced as if you’re going to sell straight away and there’s no natural “maturity” (i.e. when the bond finishes). You can now see how you’re at the mercy of interest rates… over the long term that’s fine, but there could be big swings like the above.
Has anyone seen Jeremy Hunts plans to raid uk pensions and invest the money into risky uk start ups that have a 90% failure rate. Thats about 2 trillion he and his tory mates can get their hands on.
This is the tory idea to get gdp growth by risking our pensions and their mates to get a slice of that pie for their back pockets.
As long as we keep electing corrupt or inept governments we, the working citizens, will pay the price of their profiteering.
At some point government bonds won’t be worth the paper they’re written on, population collapse, tons of people too old or sick to work, shrinking workplace, shrinking economy, massive strain on government services, inability to service the interest on debts multiples of GDP.
Ah, that old scam. Yeah “defined contribution” schemes are just gambling on the stock market and are as unsafe as any such purchase. It was all a scam. Thatcher screwed the entire country.
There is going to be a lot of people who can’t have a comfortable retirement through poor interest rates, corrupt or mismanaged pension funds or just a basic lack of income over their working lives.
In a similar way to what poor Russians have been doing for decades, British people will be committing crimes in order to get put in a minimum security prison and get fed and somewhere to sleep.
Anyone know what the prison term is for setting fire to Boris Johnson and throwing him in the Thames? Or will that just get me a medal?
13 comments
I though this would be some sorry tale of risky investments but this guy did nothing wrong and has been screwed by the system and pension fund managing twats.
It has always been the advice to put money into bonds at same percent as your age and lifestyle pensions would track that. In addition I know many final salary schemes have tried to reduce risk by going all in on bonds.
I never understood how this was valid with interest rates so low. Return was low and the only way interest rates could go was up. Why was it not obviously a bad idea? I kept 0% in bonds myself and only now am considering increasing it.
And this is why property prices will keep on rising.
People are going to see this, and if they’re old enough, they’ll take as much as possible out of their pension and buy a flat with a view to letting it out.
If they’re not old enough, they’ll put every spare penny into an ISA with a view to doing that as soon as they’ve got enough stashed away.
> ‘In the past it has always steadily increased. It would make sense if it was all invested in one stock, but I’m supposed to be in the safest fund possible.’
Ah but if you look at the factsheet you will see that it is all invested in one thing:
https://markets.ft.com/data/funds/tearsheet/summary?s=gb00b75bd853:gbp
75% UK Govt bonds.
This is not a diversified fund.
I think this is the key problem with how pensions are currently structured. People are held responsible for investing decisions they are not adequately equipped to make.
Shocking-how on earth do savers and pension fund trustees expect to increase the asset yield with interest rates having flatlined since 2008 (until recently), and the Bank of England printing £1Tn through QE? The Banks have access to free money, don’t need to pay any return, and those with cash to spare reallocate your more lucrative ventures such as property.
Bonds are fine if you hold to maturity. Bond funds that are marked to market are obviously not, their value changes daily on the secondary markets. They are as risky as an equity fund in that respect.
These people have been failed by financial advisors who conflate HTM bonds and MTM bond funds. It’s appalling.
Liz truss / Boris (liar) Johnson and rishi the idiot should take a large slice of responsibility
It’s awful, but bonds are a risky investment and not fully safe, especially 18 months from retirement. The problem is, we try to make things like this accessible to people but they don’t understand what they’re actually invested in. **Bond funds and individual bonds aren’t the same thing**.
– An individual bond is like an IOU. A company wants to borrow money, they say in X number of months / years I’ll pay you £100 (and maybe a small fee every year, like interest). It’s similar to a loan in that way, except in this scenario you’re the lender. **Once you own it, you can hold this until the X number of months are over, and get all the cash back**.
– The current market decides how much they think that it’s worth… factors are: Is the company likely to bankrupt? If you might not get your money back, you want money for that risk. What’s the price for similar companies?
– For example, if you can get 4% interest rate putting your money in a bank, then most people might want 5% if they were buying a bond. So, for a 2 year bond, giving £100 at the end, someone would happily pay £90.70 for that as £90.70 * 1.05 * 1.05 = £100.
– NOW, let’s say for some reason, you need the money before the 2 years are up, so there’s 1 year left on your bond. You want to sell it and a buyer would probably want the same return, so £100 / 1.05 =£95.24. HOWEVER, in that time, let’s pretend interest rates rocketed and are now 9% at a bank, so the other person wants 10% from a bond. Now, that means you would only get £90.91 for your old bond… **you’ve lost £4.33**.
– Note: If interests rates go up, the bond value goes down.
In most scenarios, you don’t really plan to sell the bonds so the example losses above mean nothing. You will just get the cash that you agreed at the start. **However**, a bond fund you DON’T have that choice. Your pot size has decreased because you’re not buying individual bonds, you’re just pooling your money together and there’s a whole bunch of bonds over the place.
Essentially though, you’re always priced as if you’re going to sell straight away and there’s no natural “maturity” (i.e. when the bond finishes). You can now see how you’re at the mercy of interest rates… over the long term that’s fine, but there could be big swings like the above.
Has anyone seen Jeremy Hunts plans to raid uk pensions and invest the money into risky uk start ups that have a 90% failure rate. Thats about 2 trillion he and his tory mates can get their hands on.
This is the tory idea to get gdp growth by risking our pensions and their mates to get a slice of that pie for their back pockets.
As long as we keep electing corrupt or inept governments we, the working citizens, will pay the price of their profiteering.
At some point government bonds won’t be worth the paper they’re written on, population collapse, tons of people too old or sick to work, shrinking workplace, shrinking economy, massive strain on government services, inability to service the interest on debts multiples of GDP.
Ah, that old scam. Yeah “defined contribution” schemes are just gambling on the stock market and are as unsafe as any such purchase. It was all a scam. Thatcher screwed the entire country.
There is going to be a lot of people who can’t have a comfortable retirement through poor interest rates, corrupt or mismanaged pension funds or just a basic lack of income over their working lives.
In a similar way to what poor Russians have been doing for decades, British people will be committing crimes in order to get put in a minimum security prison and get fed and somewhere to sleep.
Anyone know what the prison term is for setting fire to Boris Johnson and throwing him in the Thames? Or will that just get me a medal?