Investors should avoid rash decisions during global bond market sell-off

13 May

With the global bond market sell-off causing shockwaves around the world, savers must now review their company pensions, and investors must review their investment portfolios and also make the most of the possible opportunities that may arise.

A reported $450billion has been wiped off global bond markets in recent weeks, and there was another considerable bout of turmoil on Tuesday.  However, although several reasons for this have been mooted, including reservations that the ECB’s bond buying programme may end earlier than predicted, the probability of increasing inflation and an illiquid market, the exact cause of the global bond sell-off remains unknown.
Although it may be too soon to determine whether we could be seeing the onset of a bear market following an incredible 30-year bull market, it is most certainly advisable for investors to sit tight and not make any rash decisions.  In addition, it is now imperative for savers to check their final salary schemes’ financial status to help avoid any nasty surprises down the line.

As a result of this sell-off, so-called ‘gold plated’ final salary schemes, which already have record deficits, are now being further pounded because these pension funds are usually largely or wholly invested in bonds – as bonds are perceived to be less high-risk than shares.

As such, the falling bond market is pushing company pension deficits even further into the red, which is threatening the retirement incomes and ambitions of a growing number of today’s workers.

Company schemes are incredibly vulnerable, so it’s vital pension members understand exactly what represents a risk to their pensions and consider how they can be abated.
On a different note, even though the global sell-off in government bonds has led to weakened stock markets, causing alarm on international trading desks, when such market turmoil occurs, there are always opportunities for investors, and it is down to us as financial advisers to seek out the relevant ones for our clients.

For these reasons, it’s at times like this when financial advisers can add even more real value, by urging calm, putting things in a long-term perspective, mitigating avoidable risks and looking for those opportunities.

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