Global stock market falls and you need to know how it affects you.
The Global stock Market have sunk despite the efforts of Central Banks around the world to reduce effects of the Corona virus. Investors are worried about the effect of the pandemic as it spreads around the world. Investment of Pension/Individual savings account can be affected if there is a drastic fall in the stock markets, where companies buy and sell shares.
Why You Should Be Worried
You probably do not invest your money, so you have nothing to worry about, right? But you do have a pension plan or a defined contribution (DC) plan, which makes you a pension saver. Your pension could either be private or through work.
Defined contribution plan
A “Defined Contribution” plan is a retirement plan in which the employer, employee, or both, make contributions on regular basis. Now if you are a pension saver, you automatically have a pension pot. Your “Pension Pot” is the total amount of pension contributions you have made while saving for your retirement. Most importantly, your pot includes any capital growth earned from the fund’s investment. Pension savers have their money invested by pension schemes. This means that the value of your savings pot is influenced by these investments.
Now, a global stock market fall is likely to be bad news for pension savers. Growth could be stagnant. According to the Organisation for Economic cooperation and Development (OECD), the world’s economy could grow at its slowest rate since 2009. This is due to the Corona virus outbreak. The Economy growth could be crippled if the pandemic becomes intense and lasts longer.
What’s going on?
Factories are shutting down and suspending activities, workers now stay at home in a bid to contain the virus. Customer’s are buying less and some companies are already complaining of low customer demand, take for example, “Apple”.
As much as £600 billion is held in defined contribution pensions at the moment. Those who have their pension pot invested and takes income from it will see their investment rise and fall with the stock market. This could mean getting less returns if they cash in too much after the stock markets have fallen. You are connected to the stock market whether you invest directly or not as Pension savings are usually a long-term bet.
What Happens When It’s Time To Retire
As you approach retirement age, your pension pot is been moved to less risky investments, such as government bonds. When the stock market falls, these bonds can do better. Although, not everyone have this kind of pension plan. Some people have a pension with a specific figure depending on their salary, while others have no pension at all.
