Pensions on sale!

It has been quite some time since this many shares have been available with such a discount. Is this the time to bag some bargains for your pension account?

Watch

https://youtu.be/DcQrKEWTLdQ

Episode Transcript

(00:00):
So I want to share something interesting with you about pensions.

(00:05):
Before I do that, I just want to let you know where I am today because it is related actually.
So I'm on a seven hour drive today.
So I'm going from the world to Whitby return journey.
I want to set out this morning.
I thought to myself, do I drive the seven hours at an average of 70 miles an hour?

(00:28):
Mostly motorways or do a slow down limit and go at 60 miles an hour.
And the things I am going to go at 60 miles an hour and have been going at 60 miles an hour.
I've just pulled into services, weather be at the bones.
So the things I have to consider when I made this decision is a couple of things really.
One is I do this journey quite a lot and I reckon if I drive at 60,

(00:51):
I'll probably save between six and seven pound in fuel.
So that's one thing to consider.
And the second thing to consider is I'm less likely to crash and die.
Okay, so what order would you put them two things in?
Now, I've worked all my life and mismanaged, management, mismanaged it effectively.

(01:15):
And for me, the order would be most important would be the six to seven pounds savings.
And the least important would be the crash and die bit.
Now, some that might seem unusual, but I think it's important to understand
and this is related to where I'm going with pensions as well.
That risk is multifaceted.

(01:38):
So it's not just a single number, it's two numbers multiplied together.
And then two numbers are the impact of something happening
and the likelihood of something happening.
And a lot of risk models let you score these at five.
Five is a good number for human beings to get the head around in terms of ranking things.

(01:59):
So if I take the risk around the seven pound of getting that pound,
it's actually an opportunity, but risk and opportunity are two sides of the same coin.
So the likelihood of me getting the six or seven pounds is pretty much 100%.

(02:21):
So I'm going to give it five because I know it's in my control.
I'm going to drive that speed and then know that if I do,
through past history, it saves me six or seven pounds and it's like a journey.
Now, the impact of that is right down at six, seven pounds.
I'm going to give it a two.
Now, it's enough for a pint in the city centre or two pints in my local.

(02:43):
So I'm going to give it a two.
So that means five times two because there's a total risk of 10.
Now, let's take the crash and die thing.
So the impact of that on me would be a five, obviously, I'll be dead.
But the likelihood I know is pretty much a one.

(03:04):
You know, I've been driving on my life.
I've never seen this accident.
There's millions of people on this road today and very few of them will come
anywhere near an accident.
So one times five is five.
So actually, I'm much more likely to take into account the savings in petrol
than I am the likelihood of dying.

(03:24):
OK, so that become apparent.
I want to start talking about where we are today with pensions.
So if I stop random people in the street and I ask them if they buy this thing,
normally, you know, at least nine out of 10 of them would say no,
they never buy these things.
And reality of a check the bank accounts, pretty much all of them will buy these things.

(03:47):
And there's a massive sale on at the moment.
So you probably guess what I'm talking about, given the subject of the talk.
And that's shares.
So at the moment, shares in the American stock market today,
well, Nasdaq's down nearly 12 percent.
The S&P's down around 10 percent over the last couple of weeks, last few weeks.

(04:11):
So what you are, I'm effectively saying is if you're buying today, you get there,
you know, a 10 percent discount on what you'd usually pay for these things.
And the reason most people say they don't spend money each month on shares
is they don't quite know what happens with the pension.
So when you get your pay slip, you generally notice that there'll be a deduction in there for your pension.

(04:37):
And what will have happened is your employer will have taken that money off you
and give it to a pension company, which in turn will have used that to buy shares.
Now, they'll be buying the similar shares to everyone else, you know,
the big stock market to be where most of the money goes.
And that's where the big 10 percent discounts are coming at the moment.

(05:00):
So when I say there's a sale on, it really is a good time at the moment to be invested in pensions.
And the thing with pensions is you tend to invest in them a long time.
And share prices rock it up and they rock it down.
But overall, there's a general trend upwards, which is where we this is why we do so well when we have pensions.

(05:26):
There's that the fact that the stock market goes up gradually over time.
And there's also the fact that it's so tax efficient for us
because the government gives us lots of incentives to contribute to a pension.
Now, if I think about risk and what I was talking earlier at the beginning of this conversation

(05:49):
and we think about what's the risk of buying shares?
Well, again, we've still got this impact and likelihood thing.
So if you've got a nervousness about a particular company that you know your shares are invested in,
then you may look at the impact of that.
So if there's a big problem, how much of my hard and cash is in that particular company?

(06:14):
So that's the impact.
And if you've got a lot of money invested in that single company, it'll have a large impact.
However, if that's just one of a thousand companies that you're equally invested in,
then obviously the trouble in that one company around very little impact overall
because it's only a thousand of your pension investments.
And the second thing is the likelihood.

(06:36):
So some companies are what we call highly volatile.
If you look at the share price over the years, they go up and down like a roller coaster.
And this is to do with the type of industry they're in.
They may be in quite a high risk industry, quite competitive industry,
a lot of changes going on, regulatory change, that kind of thing, fashion trends that can impact the business.

(07:02):
And there's other companies that tick along, make the same products, have steady streams of income
and will gradually go up and gradually go down over time due to how the company's being run.
So when you're thinking about a particular investment,
you need to think about whether you are putting all your monies in a small number of companies,

(07:23):
which will have a bigger impact on you.
And you also need to think about the type of industries you're in
and whether the probability of or the likelihood of them shares going up and down is something that you can stomach.
So if you're risk of a shoe will split your money amongst lots of companies
because the impact of one company going down will have less impact on you as an individual.

(07:46):
And you also might pick some less volatile stocks.
Now, a highly volatile stock might be a startup.
So for example, you know, you're looking at a company that's making a cancer drug.
Now, there's a chance that that will go to the moon and they'll find a cure for cancer.
And there's a chance that it won't get through the research phases and the company will just dissolve and you've lost all your money.

(08:10):
So that's a type of highly volatile high reward.
If you're lucky, most of the time you're just going to lose early cash.
Now, you'll probably think, well, I just my money disappears at my payslip every month of the dollar.
What happens to it?
And that's probably because you've not really looking, though, to be honest,
because if you do log on to your pension website, you'll find that with most pensions,

(08:35):
there's the default scheme, which most people go in and just leave it there.
But you can go in and you can you can look at the different type of investments.
So you can look at how it's diversified.
You can look at, you know, for example, you might want to not invest in tobacco
or you might want to not invest in property if you think that's not going to do well.

(08:56):
And you know, it is worth having a look at your investments to see if they sit with you as a set of investments,
which you're comfortable with.
And also, if you think they're in the right kind of risk profile when we're talking risks,
bringing the impact and the likelihood of something happening.
OK, so here's a good time to be buying.

(09:17):
I'll put your money into into pensions at the moment because pensions generally
can get vested in shares.
They're running a discount at the moment.
So when you buy in now, you're buying low.
I hope that was useful.
So I'm off to Whitby now and I'll catch you all later.
Oh, by the way, someone commented that they thought it was unwise me driving.

(09:39):
Now, for me, the risk profile of talking and driving is fairly low.
And as an individual, I was quite happy to take that.
However, the risk of annoying some of you guys who prefer me not to do that
is much greater.
And I'd rather have you listening to my channel.
So the risk assessment for me was let's not do videos when I'm driving
just because it will annoy you a lot.

(10:01):
All right, see you again soon.
Cheers.