When you’re invested in “the market”, whether it be through a pension or other investments, it’s a good idea to track how they’re performing. Our investments team looks here at how shares, bonds, and property have performed and what could affect them looking ahead.
Shares mostly rose modestly in value over the period. While the pandemic is not over, shares in the UK and around the world gained in value overall as investors were optimistic about vaccines and the return to normal economic activity. There were some concerns about rising inflation (prices) and how financial authorities may react to this. However, this was not enough to curb overall enthusiasm.
Bonds mostly had a weaker period than equities, with government bonds and some types of corporate bonds delivering lower, and in many cases, negative returns. Generally, the main reason for this has been the threat of inflation as people begin to spend money again and as bottlenecks and supply chain issues lead to lower availability of goods. When inflation rises, usually interest rates do too, which drives bond yields up, and prices down.
Property: Overall, both the UK and the global commercial property market saw strong gains over the period, with types of property that have benefited from the pandemic, such as online retail warehouses, performing particularly well.
Outlook: Financial markets can be prone to sudden changes on a short-term basis. Factors like inflation, the health of the global economy or further COVID-19 developments, could lead to a more bumpy ride in the in the coming months. We focus on the long term though (generally 10 years or more), because we believe that it’s the best way to deliver positive results for our customers and to help them meet their investment objectives over time.
Whether you have a pension, an Individual Savings Account (also known as an ISA), or other type of investment product, it is likely that your savings are invested in a fund or mix of funds. Funds group money from lots of savers, which is then used to buy investments such as shares in companies or bonds, for example.
Shares offer investors a share of ownership in a company. Bonds act as loans to a government or a company in return for payment of a fixed rate of interest over time. Bonds are intended to be paid back in full at a predetermined date in the future. Shares are considered riskier investments but have the potential to be worth more over the long term. Profitable companies can, but are not required to, pay investors a payment known as a dividend. Bonds are often considered less risky and offer the advantage of regular interest payments. Bonds also rise and fall in value, but usually less so than shares. You may also be invested in a fund that owns other types of investments, such as shares of companies that own and manage property, or that invests directly in commercial property used by businesses and shops, for example, rather than for residential purposes.
Many pension funds will invest in both shares and bonds, and sometimes property or other types of investments. Funds that invest in more than one type of investment are called “multi-asset funds”. This is typically how your Scottish Widows pension might be invested. Investments come in a range of options from lower to higher-risk. Mixing different types of investments can offer you various levels of risk and potential reward, depending on what your investment goals are. This is because different investments do well at different times. Having a spread of investments with different risks balances out the overall risk of a portfolio over time.
A fund manager does all the hard work and decides which investments a fund should hold, in what quantities, and when the investments should be bought and sold.
A pension is a long-term investment. The retirement benefit(s) you receive from your pension will depend on a number of factors, including the value of your plan when you decide to take your benefit(s) which isn’t guaranteed and can go down as well as up. The value of your plan could fall below the amount(s) paid in.