Partner Article

Variation on a major theme

We sometimes think there must be something obvious to be said about an important topic, only to find that, when we try to say it, things are actually a little more complicated than they seem. Our aging populations are a case in point: surely there must be some clear-cut implication for investing? But there isn’t: there are simply too many moving parts even for the brightest and best to disentangle (if saxophonist Charlie Parker couldn’t play something, it wasn’t playable). The best advice is to keep an open mind; an aging population needn’t be poorer, and its investment portfolios needn’t be any smaller (which is not necessarily the same thing).

The welcome measures in the UK Budget have put pension funds themselves back on the front pages, and reminded us all of the extent to which the “demographic time-bomb” is nowhere near as scary as it is sometimes made to seem. An older population need not be a threat: we are not fully using the labour we have to begin with, and prosperity is, in any case, not dependent solely on labour input.

If you’re going to accumulate a pension pot, stocks remain the most obvious way of growing its value (for a defined contribution fund) and of backing any long-dated nominal promise it makes (for defined benefit schemes), whatever the strange world of pension accounting may say. This is provided, of course, that those stocks are not prohibitively expensive to begin with, which they still aren’t in our opinion.

Indeed, whether investing with a specific nominal target in mind, or simply to maximise risk-adjusted returns, developed stock markets in particular still look to us to be the most attractive asset class strategically and tactically. Geopolitical risk in the Ukraine, and increasingly visible interest rate risk in the UK and the US, does seem to threaten some renewed stock market volatility. So too does the slowdown in China, although, the Chinese government is both able and willing to do a lot to prevent it from turning into the hard landing and financial disruption that many fear. Until the next US recession looms more visibly, we continue to view such volatility as a likely opportunity for under-invested clients to add to their positions – risk appetite and financial circumstances permitting, of course. Whether held for pension purposes or otherwise, all investments can fall in value.

By Richard Clark and Simon Patterson, Private Bankers at Barclays Wealth and Investment Management, Newcastle

This was posted in Bdaily's Members' News section by Barclays Bank PLC .