A WHILE back I wrote an article for this column showing our dependence on the price of oil. While many believe that they use oil only in their car and their central heating, there is a surprising range of items we use that are made from oil.
Half of a 42-gallon barrel of oil makes 19 gallons of petrol/diesel; the rest is used to make plastics (your credit cards, mobile phone, computer), dry cleaning fluid, food packaging, soap, vaseline, glue, nylon, aspirin, nail polish, anasthetics, detergents and, of course, the big one: electricity! It was a revelation to see exactly how oil, and the price of oil, dominates our daily lives.
Today I have a similar revelation to make, which may also come as a surprise to many of us. Do you invest in stocks and shares? No?
Well I must tell you, if you are saving into a pension scheme, you almost certainly do, because pension schemes invest your money for you, to allow it to grow over time, and the bulk of those investments are in the stock markets. You may be a stock market investor, without being aware of it!
Well, we have all heard the warning about stock market investments: “The value of your investment can go down as well as up, and you can get back less than you originally invested.”
Which is why the publication this month of the latest report by the research company Bestinvest is worthy of our attention.
Bestinvest’s report (with the catchy title of ‘Spot the Dog’) examines all the funds on the UK market, and identifies the ones that have been consistently underperforming for the past three years.
These are the funds where your pension savings might well be invested, and if so, then you are missing out on growth you could have had if you were in a top-performing fund.
This year, Bestinvest identified 41 dog funds, holding assets totalling a massive £8.6 billion. As usual (‘Spot the Dog’ appears twice a year), the dogs include some of the largest funds on the market, run and managed by some of the biggest investment names in the world. Even the biggest find themselves, at times, walking through a red valley of tears.
Moreover, the under-performers change from year to year, and a fund that had a good year last year may not fare so well in future.
This is why, in the funds market, they say: judging a fund based only on past performance is like driving a Mercedes looking only in the rear view mirror.
And this is why it is essential, preferably once a year, to check the performance of the funds your pension scheme is using.
You do not have to stick with the funds you have. If those funds are not doing well, you can switch out of them and into better performers, to fine-tune your pension savings and keep them running in fourth gear, rather than struggling along in second.
To do that requires only a short conversation with a qualified financial adviser. We have access to performance data, and we can look at the individual stocks and companies in a fund.
An adviser will tell you not only how your pension investment is doing, but also give you a breakdown of the mix of sectors where your money is placed: in the banking sector, in the oil & gas sector, in manufacturing, in tech stocks, and so on.
Bestinvest continue their ‘dog fund’ metaphor by comparing the financial adviser to a dog whisperer who can help with problem dogs.
And as they sum it up the message behind Spot the Dog very well: “It is vital to monitor your investment portfolio closely. Holding investments that consistently under-perform can seriously affect your long-term wealth.”
It doesn’t matter that we are a nation of dog-lovers in real life; in terms of our pension growth, we are all allergic to dogs!
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005.
