The financial turmoil of the past week provoked by the mini-budget has damaged the pensions, Isas and investments of millions of ordinary British households. What impact has it had on your money, and what, if anything, can you do about it?
The blow to Isas and shares
Some individual shares have really cratered over the past year, and many dived further after the budget. Ocado, the online grocery retailer, is down 71{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} over the year. Persimmon, the housebuilder, is down 55{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, M&S is down 49{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}. However, BP is up 28{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and Shell is 36{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} higher.
Bad luck if you put your Isa money into a bond fund. They are sold as cautious, safe investments. But the ones invested in UK gilts – the bonds issued by the British government – fell by about 12{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} in just the two days after Kwasi Kwarteng’s mini-budget, and have not recovered since.
The FTSE 250 index, made up of medium-sized companies (retailers, housebuilders, etc) has fared far worse than the FTSE 100. It has slumped by 8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} since the budget, and is down by nearly 30{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} since its peak in September last year.
The most popular fund in the UK for small investors is Fundsmith Equity, which manages about £24bn. Investors have lost about 1{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} in the past two weeks, and if you invested a year ago you are down 9{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}. But it is still up 72{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} over the past five years. Few will want to bail out.
What it means for your pension
Normally pension funds are steadier than the stock (equity) market, as they have a mix of shares, bonds and property. But with bonds doing so badly, they have been hit, too. For example, Legal & General’s standard pension fund invested on behalf of lots of UK employers has lost about a tenth of its value over the past six months.
You have little to worry about if you have a final salary-style pension, where what you get is related to how much you earn. But they are mostly limited to the public sector now.
The good news
Yes, there is some. The proportion of your pension fund invested in UK shares and bonds is far below where it was a generation ago. Microsoft, Apple, Nestlé and Samsung are likely to feature more highly in your pension than most British companies.
Wall Street has fallen, too, but because the dollar has risen so far against the pound, the impact for us has been minimal. As Jason Hollands of Bestinvest points out, in sterling terms the S&P 500 index of giant US firms is only down by about 3.8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} since the start of the year.
The big FTSE 100 UK companies – such as BP and Shell – make most of their money outside Britain. They report their profits in dollars, which may translate into a bonanza in sterling terms.
What you can do now
Doing nothing is not a bad option. In late February 2020, when the coronavirus pandemic struck, the FTSE 100 slumped from 7,450 to 5,190 in a matter of days – a loss of 30{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}. But by January 2021 it was back above 7,400. If you are young, you should be able to survive the slings and arrows of outrageous fortune in the markets over the longer term.
The mantra of the UK’s most successful money manager, Terry Smith of Fundsmith, is: “Buy good companies, don’t overpay, do nothing.”
Pay more into your pension
This is almost always a sensible thing to do if you have spare cash, as you get 20-40{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} tax relief. Your contributions today will be buying shares much more cheaply than a year ago. Ask your company if it has a matching additional voluntary contribution scheme.
Shift it into cash
Most company pension schemes allow employees to allocate their money between bonds, shares and cash. If you really believe we are heading towards Armageddon, you could put a whole load into cash, but you will be lucky to get more than 0.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} interest within your pension, and if the market moves back up, you will lose out massively.
Buy gold
Usually a safe haven in stormy times, gold has actually been falling. In dollar terms it is currently $1,651 an ounce, down almost 20{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} since March this year. But in sterling terms it is about £1,505 an ounce, roughly flat over the same time period. That tells you how far sterling has fallen rather than how gold is viewed on world markets.
What if I want to make a quick buck?
The FTSE 250 index is cheap by recent standards if you are inclined to take a punt. In Europe, Spain’s Ibex 35 index of its biggest companies has fallen hard, too – down about 30{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from where it was in 2018.
A lot of the US tech stocks are down massively: Netflix and Facebook are down about 60{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} this year, while Amazon and Google are off by about 25-30{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}. You will be laughing if they bounce back – but not if sterling bounces back, too, wiping out much of your gain.
How to invest
Want to buy shares or funds online? Read this guide from the Guardian.
