Published on 24 February 2021

It’s been a year since my last pension review on the blog, so here’s an update.

In my first (and unfortunately the last!) update in February 2020, I talked about how I got into opening a Self Invested Personal Pension, or SIPP. And then brought you bang up to date on the investments I’d made just before the pandemonium started!

Falling prices present a pension opportunity

Well needless to say, it’s been an interesting year since… In the eye of the storm, in mid March 2020, the value of my pension had fallen by about a third. Scary stuff, you would think, but it actually presented an opportunity because all risk-based investments became oversold forcing their prices to plummet as people panicked. It meant that even the companies positioned to do well from the crisis, or those that were unaffected by it, were much cheaper than they were before.

As a result, the value of the investment funds and investment trusts that buy shares in these companies, also fell.

The other thing playing to to my advantage was the cash I had ready from investments I had already sold. When you sell investments in a pension the money just sits there until you do something with it. With my pension provider it also earns 0.00% interest too, so when you take into account the fact inflation is currently 1.5%, it’s actually losing value.

Pension game plan

So what was my pension plan? There were three things I wanted to do:

  1. Buy some more of the investments I already held. My logic here in’ topping up’ was that if I thought an investment was good when it was £1/share, then it was even better at £0.50/share.
  2. Buy some things I previously owned, but had sold. Again this was a bit opportunistic, but I had only sold them to bank a bit of profit. I didn’t think there was anything fundamentally wrong with the investment proposition.
  3. Buy some investments that I’d been looking at for a while but were just too expensive.

Investment decisions

And so that’s exactly what I did! In category 1, I bought shares in two investment trusts I already held in my pension: The City of London Investment Trust and The Bankers Investment Trust. The former invests in large UK companies. The latter invests in companies all over the globe. As the UK and the rest of the world was in a state of panic, the share prices of these two fell dramatically. City was down 36% and Bankers 32%. As it’s just not possible to time the market and know when the bottom is, I wasn’t able to buy shares at the lowest prices in those few days of madness, but I did buy at substantially lower prices than they had been in February.

In my second category was Henderson Smaller Companies Investment Trust. It buys shares in smaller UK businesses which faced a broadside during the pandemic – and so it proved. Shares in this investment trust plummeted at massive 54% in the space of a few days. Again, I bought in, thinking that in the long run there would be some casualties, but in the main small UK companies would ultimately survive. Arguably they would be the quickest to adapt to the new normal.

Finally, there was the category of investments that I’d been looking at for a while, but thought were too expensive. Top of the list here was Scottish Mortgage Investment Trust, managed by Baillie Gifford. It invests in companies like Tesla, Amazon and Alibaba. The share price ‘only’ fell by 28% in the dip, but has rocketed since then – up 202% from the March 2020 low to mid-February 2021.

Conclusions

So what have I learned? Well, first off these were tactical moves only. My pension strategy is a much longer term affair. In fact with self invested personal pensions, you’re not forced to buy a guaranteed income known as an annuity when you retire. You can stay invested until the day you drop and, unlike an annuity, anything left in it at that point forms part of my estate to be inherited.

But I think the key thing I’ve learned this time around is to have some cash ready for your next investment. It may not be working very hard for you, but it’s there if some corner (or indeed all) of the market panics, and opportunities emerge for the taking.

Just a reminder that any investments mentioned here are for illustrative purposes only, and this is not a recommendation to buy, sell or hold any of them.