It almost goes without saying that a pension is a long term investment. If you start contributing to one in your late teens or early twenties, it might easily be 40 or 45 years before you start to access it. So in theory, you don’t need to check in on your self invested personal pension all that frequently. But when markets are up and down like a yoyo, as they have been over the last 16 months, the temptation to login can be overwhelming. Nothing wrong with that, but what actions should you take?
Overwhelmed by temptation
It’s been a while since I last wrote about my own pension. But it’s not been very long since I last had a look at how it was doing! In fact, during lockdown it almost became a daily occurrence. This is totally counter intuitive for a long term investment, and one which I hope will be able to stay largely invested once I stop working. But with online access at Hargreaves Lansdown at the click of a few buttons, the temptation to see the impact of the market’s gyrations on my chosen funds, trackers and investment trusts was overwhelming.
And, lo and behold, some of my investments have moved about wildly. And some had hardly gone anywhere at all. In fact they had continued to languish so it was time for a reappraisal.
Pre-pandemic pension problem
Two of the prime suspects for review we’re pre-pandemic pension purchases. The first Woodford Patient Capital (as it was then) is now Schroder Public Private Trust, the mandate having been moved after Neil Woodford’s well documented fall from grace. This was a silly purchase, if I’m honest. It was launched with much hype and fanfare in 2015, and new investors piled in a record £800m at the time.
Looking back I should have seen the signs – remember that movie, album, or book that was much hyped? How did it turn out? Exactly. I bought some for my pension in December 2017 for 84p, and some more in February 2018 for for 78p. After all, my logical side said, if it had been a good investment at 84p, it was an even better one a few months later for 6p a share less.
The end was nigh
Sadly it was not to be. As well as the investment trust, Mr Woodford ran an equity income fund. It performed very poorly and people wanted their money out. To fund these ‘redemptions’ he had to sell investments – except it turns out the investments weren’t very easy to sell as they were in private areas of the market he wasn’t meant to be. By October 2019, the fund and his investment management firm had collapsed. Investors in the fund were locked into their losses, and law suits continue. There was a knock on impact for the investment trust resulting in Woodford being removed as its manager. Schroders successfully bid to take over the mandate in December 2019, by which time the price was of the order of 35p/share. It rallied briefly on the news, but by May 2021 it had gone literally nowhere. Lacking any further patience, I sold out my complete holding at 35p, a poorer but wiser man.
Banking on dividends
The second candidate for a cull was an individual share. Now I don’t often buy specific stocks, and to be honest I don’t really know why I bought this one: Lloyds Banking Group. Perhaps it was a misplaced sense of loyalty. After all I had worked for the Halifax (offloaded onto Lloyds in the 2008/9 crisis) for 10 years. Or maybe it was the promise of a new CEO and the resumption of dividend payments. Either way I got in. 3 trades later (between April 2017 and March 2020) I was the ‘proud’ owner of a bucketful of shares at an average purchase price of 59p.
And then then the music stopped. Or more accurately, the dividends stopped. The UK financial regulator, the FCA, told the banks to stop paying dividends during the crisis. The share price bottomed out at 24p in September 2020, and I cut my losses by selling at 46p in May of this year.
Painful pension decisions
Both of those decisions were fairly painful, and cost me dear. On the plus side, the money I had languishing in two investments that were, in my view, going nowhere fast has since been put to use elsewhere and I’m pleased to report that, so far, so good. But that’s a tale for another day.
All that remains to be said is that when you’re investing, it sometimes pays to sell at a loss. That may seem like a weird logic. But with my mind made up that both of these investments were going nowhere any time soon, the opportunity cost of not deploying that capital more successfully elsewhere was self evident. It was time to stop just looking at my pension, and take some action. So I did!