When the world catches a cold, do you…

…offer it a tissue or worry about your pension?

Smacked around the face by the C- word

News coverage of the outbreak of a previously-unknown virus in the past few weeks has made me question my reaction to such an event. Did you note that I couldn’t even bring myself to name it in the opening sentence? With the nation still reeling from overuse of the B- word since the referendum in 2016, we have been smacked around the face again by the C- word (are we actually going through the alphabet here?). And I, for one, am finding myself more exercised by what feels like media manipulation than by the news itself.

Passing a metaphorical box of tissues

This is wrong of me, I know. In a situation as serious as a sometimes-fatal illness that can be spread effortlessly amongst the population – especially in nations with less-developed healthcare provisions than our own or amongst the elderly – it is right that we are kept informed about it and how to manage it. And so it would be right for us to feel that, as a connected world, we were passing our metaphorical box of tissues around in the sense of working together, globally, to minimise loss of life wherever that might be. This is undoubtedly what is actually going on at the level of the World Health Organisation and other non-partisan, international bodies – but is this the message that makes it to the headlines?

An ever-increasing sense of panic

I think not. Instead, the media is encouraging us to focus on the proximity of the Coronavirus to our own backyards, building an ever-increasing sense of panic about everything in our own lives that we have worked for. And this includes our pensions.

If the virus doesn’t get you, financial ruin will

When news that fears about the virus had wiped an unfathomable £200bn off the value of the UK’s largest public companies (those in the FTSE 100) topped the bill alongside the virus’s death toll last week, it felt like the message was ‘If the virus doesn’t get you, financial ruin will’. And again, I don’t mean to downplay the economic effects of something that potentially affects the human capital of the entire world and its ability to make things and serve people in all areas of society. But I do dare to hope that we will get over it.

Pensions that are wildly affected by the markets

So, what about that pension? Now, I need to make clear that I am talking to those of you who, like me, are still in the saving zone of pension land and have the type of pension that builds a fund for us (rather than the type of pension that guarantees to pay a certain amount for the rest of your life). This is because our pensions are likely to have investments in equities – stocks and shares. And it is these that have been so wildly affected in the markets.

[If, on the other hand, you are already drawing on your pension (nattily referred to as ‘decumulation’ in the industry – as opposed to ‘accumulation’ – see what they’ve done, there?) then you will not have as many of these types of investments and should not be affected in the same way by spectacular falls in the stock markets such as we saw last week.]

Gambling away your retirement savings

I want us to consider two scenarios: first, let us assume that you are building a pension fund – or perhaps long-term savings in a Stocks and Shares ISA – and that you happened to go online and check the value of it before the virus propelled its way out of China. And that you did the same thing again on the last trading day of February. You might have seen 10% wiped off the value of your funds in that time. And you might have been tempted to panic, rueing the day you were ever persuaded to gamble away your retirement savings in a product that relied so heavily on an unpredictable stock market.

Does passing the tissues make you typically ‘female’?

Now let us assume that you didn’t really think about your pension in all the news that was being thrown at you throughout February and that your thoughts were more with concern for the vulnerable, keeping you and your family abreast of basic hygiene rules and – yes, generally passing around the tissues.

Does that second scenario make you naive? Financially un-savvy? Typically ‘female’?

Or are women better long-term investors than men?

Those are, of course, rhetorical questions, but here’s the thing: there are a number of studies that want to suggest that women actually make better long-term investors than men. One study by Hargreaves Lansdowne cites around 50% lower levels of ‘trading’ (that is, switching in and out of stocks chasing a better return) in women than men. Boring Money puts a woman’s average investment holding time at 10.7 years versus 8.3 years for men. One of the advantages of holding investments for longer is that there are lower charges if you don’t spend your days ducking and diving in and out of stocks and shares and this can lead to better returns on your money. But beyond that – and in a more general sense – staying invested in equities for the long term has a good historical track record in comparison with keeping your money in something like a cash deposit account.

Holding on through market downturns

There was a study released in 2016 called the Barclays Equity Gilt Study that looked at investments in cash compared with investments in equities in the 114 years from 1899 to 2013. Its results show that the longer you can hold on to these types of growth-investments, the more chance you have of coming through times of market downturns. In fact, based on what happened over that time, it shows that you have a 91% chance of getting better returns from equities than cash if you hold your stocks and shares for 10 years. And that goes up to a 99% chance if you hold for 18 years. Within that study, these numbers held true on any rolling 10- or 18-year period.

Historical circumstances dictate how we behave around investments

If women are showing themselves to be longer-term investors than men, this looks like being a positive. But studies into gender-related investment behaviour probably need to be viewed with eyes wide-open to the larger picture. I reckon the results of any such study are going to be affected by the very fact that women remain behind the curve in investment activities generally. And it won’t be until our engagement in long-term investing is on a directly comparable level with that of our male counterparts that we can draw any conclusions about whether there is something inherent in our female-ness that influences how we approach investing. For what it’s worth, however, everything in me screams that this can’t possibly be so, but that it is the historical circumstances around how much control we have had of our money (and how much we have earned or paid into our pensions) that dictate how we behave around investments, not the number of our X chromosomes.

A hands-off approach can act in our favour

Nonetheless, it may be that our relatively hands-off approach to investing – for whatever reason – is acting in our favour when it comes to holding tight and not panicking every time a stock market sneezes. If, as is the case for many of us, your exposure to investments is limited to a pension – or Stocks and Shares ISA – that is managed by investment professionals who have made sure that your fund is spread across a number of investments, then it is perhaps unlikely to occur to you to absorb news of a global virus outbreak in terms of ‘how quickly can I get out of the stock market’.

And if your overriding reaction to the spread of an illness is one of sympathy and concern rather than ‘how much has the value of my pension or investments reduced’, you are more likely to leave well alone and so allow the theory of long-term investing a chance to come good.

To ski or not…

Meanwhile, in our house, Daughter number 2 has a school ski trip looming in the Easter holidays in northern Italy. Am I worried more about my pension or about how to deal with the disappointment that could be about to descend on what is the very definition of solipsism – a 14-year-old girl? Hmm, where are those tissues?

4 March 2020