Pension funds can be adversely affected by Eurozone instability arising from Greek crisis

Business Q&A

Published 07/07/2015 | 00:00

Q I am self- employed in my mid 50's any have had the good sense over the years to pay into a pension for my retirement. However, I am worried about how the current Greek financial crisis might impact my pension. Can you please advise if I should be worried or not?

A There is no doubt that the Greek debt crisis is not just isolated to Greece or even to government finances around Europe. It is also of concern for pension investors.

You may not be aware of it but you are more than likely invested in some way in the current Greek crisis, it's just a matter of how much.

Pretty much all pension investors are invested in a mix of equities (stocks and shares), bonds (government and corporates), property, cash and commodities, to name just a few.

So, what makes Pension Fund A more or less susceptible to the Greek crisis than Pension Fund B?

The golden rule with any form of pension investing is to ensure you have a very broad range of assets in your pension fund that will behave in different ways at different times. This will not prevent a fall in value of your pension fund, but it will cushion the fall during volatile times.

Take for example a pension fund, Pension Fund A, that has 70% in Eurozone Government Bonds and 30% in European Equities. Such a pension fund would be very heavily dependent on what happens in the Eurozone as it very obviously has a narrow investment focus - i.e. the Eurozone. It will rise and fall based on the fortunes of the Eurozone.

However, take for example a pension fund, Pension Fund B, that has a broader mix of assets incorporating world-wide equities, UK & Irish property and some cash. This pension, whilst it might be affected by the current crisis, is less dependent on the turmoil in the Eurozone as it is not as directly exposed to all things European.

Any well thought out pension portfolio should be constructed with these principles in mind.

There are good and bad times too be expected when investing for the long term but the aim should always be to ensure you have a wide range of assets in your pension fund that are never overly reliant on any single asset or region. When done correctly these principles will see you successfully through the inevitable recurring financial crisis to be expected when investing for the longer term.

If you have any questions, please contact mcoburn@rda.ie

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