How will the stock market fall affect my personal finances?

How badly has my pension been hit?
It’s bad, but not as grim as the headline falls in the FTSE or Dow suggest. As a rule of thumb, for every 10% fall in the FTSE, the value of your pension investments fall by about 5% to 6%. Since the coronavirus crisis gripped the markets, the FTSE 100 has fallen from around 7,400 to 6,000, a drop of 19%. So you can expect that the total value of your pension pot is down by about 9% to 11% so far.

I’m in the government’s auto enrolment pension scheme. How’s that coping?
There are now 8.5 million British workers automatically enrolled into the Nest workplace pension scheme. The good news is that its main fund is only 52% invested in shares, with much of the rest of the money in government and corporate bonds, some of which have been going up in value during the crisis. Nest, in common with other pension providers, does not give daily updates on pricing, but said that for the period from the start of 2020 to 6 March, the fund was down 4%. After today’s market fall, that figure will be looking worse.

Previous stock market lows

28 October 1929 The original Black Monday. The Dow plunged 13%, then a record, as the Great Wall Street Crash ended the bull market of the 1920s.

29 October 1929 The Dow plunged 12% amid a second day of panic selling, wiping out investors who had borrowed money to buy stocks.

19 October 1987 Wall Street’s worst day ever saw 22.6% wiped off the Dow, sparked by worries about the US economy and fuelled by new automatic trading programmes.

14 April 2000 The Nasdaq index plunged by 9% as the dotcom bubble burst, sending tech stocks down 25% in a single week.

17 September 2001 After 9/11, ​Wall Street remained closed until 17 September 2001, the longest shutdown since 1933. The Dow fell 7.1% or 685 points on that first trading day, with airlines and insurers leading the rout.​and there were more steep losses in the days that followed. Among the biggest fallers were companies in the airline and insurance sectors.​

15 July 2002 The FTSE 100 tumbled 5.4%, its worst daily loss during a poor year dominated by fears of war on Iraq, tensions in North Korea, and economic stagnation

10 October 2008 The collapse of Lehman Brothers in September 2008 triggered an autumn of wild plunges, with Britain’s FTSE 100 shedding 8.8% in a single session​, its worst day after the 1987 crash.​

22 September 2011 The FTSE 100 fell 4.6% as markets wobbled during the summer, hit by fears of a new global recession and the Greek debt crisis.

24 August 2015 The FTSE fell 4.7% or 289 points, wiping more than £70bn off the value of London-listed companies, amid a wider global sell-off, prompted by fears about the health of China’s economy.

9 March 2020 Fears of a global recession triggered by the coronavirus, and the launch of an oil price war, hit global markets. The FTSE 100 plunged 7.7% , pushing it into an official bear market.

I’m only 30. Do I have much to worry about?
Not really. If you’ve been paying into a workplace pension, your total savings will still be relatively low, and you are looking at 30 to 40 years of more contributions. Many of the workers in Nest are in this situation, so the advice to sit tight is probably best. If you are young and believe the coronavirus situation to be overblown, you might even want to increase your pension contributions if you can.

I’m close to retirement. Am I worse hit?
Yes. If you are the typical UK middle income full-time worker in your late 50s to early 60s you will have accumulated perhaps £200,000 to £250,000 in your pension pot. Many schemes will have “lifestyled” you away from shares and into bonds, but this is nonetheless a big blow. You’ll either have to work longer or accept a lower income in retirement. Or keep your fingers crossed that markets bounce back very quickly.

I’m a teacher/local government worker/fire fighter with a final salary-style scheme. Am I safe?
Yes. Your scheme gives guaranteed retirement payouts dependent on your career-average salary. But the underlying scheme will be invested in shares and bonds, so will still be hurting. If the meltdown in markets persists, your employer – usually the government for these schemes – will have to either pump more money into the scheme or demand extra contributions from workers.

Is there much I can do with my pension?
Yes, although few people do. Your scheme should allow you to view the value of your investments and give you the choice to allocate them to various funds, from zero risk (cash) to high risk (100% equity). But the vast majority of people leave it in the default fund, typically about 60% in shares and the rest in bonds and property.

What about my Isas? Are they in freefall?
This is where it starts getting ugly. There are two types of Isa; cash Isas – deposits at a bank or building society, which are not affected by the stock market falls, and share Isas – which are very much affected. These will be 100% invested in a mix of shares and will be seeing falls of 20% or more. M&G Recovery, a £2bn fund, was already down 21% before the market crash on Monday. Britain’s most popular fund, The £18bn Fundsmith Equity, lost 7% of its value in February and will have fallen further today.

Should I sell out now because it’s going to get worse?
These are wild and emotional markets, so any decision is brave. The big money managers usually say sit tight but some are selling down. Hawksmoor, a UK asset manager, said on Monday that “despite the falls already seen in equity markets, we are reducing the equity weightings in our portfolios and holding a much higher percentage in cash than would be normal for us”.

In the financial crisis, UK markets fell by 46% from peak to trough over the course of 489 days.

Mohamed El-Erian, chief economic advisor at Allianz, told CNBC that this is no time to be buying the dip or selling everything, pencilling in a total market fall of up to 30% from the market peak. His advice: stay on the sidelines.

“This is going to be treacherous for a while. I would advise most retail investors to stay on the sidelines, not panic. There will be opportunities but they’re not now.”

But Lloyd Blankfein, the former boss of Goldman Sachs, tweeted that the markets will recover soon, arguing that the financial system is in better shape than 2008 and that the damage from this outbreak will not be systemic.

What’s the good news?
Petrol will be coming down in price, and so might your heating bills. The forecourt price in the UK is currently around £1.20 a litre, and the AA suggests this could go to £1.10 if the oil price collapse continues. In the US, where duty is much lower and the petrol price more directly reflects movements in the oil price, it is forecast that the per-gallon price could be heading towards $2 from the current $2.40 rate. That will be a very significant boost for personal incomes.

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