IFAC Logo
Menu

22 Jun, 2020

Does Risk Management Work?

Head of Financial Planning, Martin Glennon talks of how the current pandemic has impacted Pensions and Investment funds. Stating that they clearly have been affected by these sharp falls in share prices. But, the extent of the impact will be largely down to the risk level of the fund/s you are invested in.

The 19th day of February 2020, will be remembered for a while as the day when most of the large stock markets reached their peaks. For the next five weeks the financial and social implications of COVID-19 hit stock markets hard and fast. Over that period the S&P 500 was down 33.8% and the Eurostoxx 50 was down 38.3%. A natural question for clients is, what impact has this had on my pension or investment funds? This all comes down to risk.

Pension and Investment funds, clearly, have been affected by these sharp falls in share prices. But, the extent of the impact will be largely down to the risk level of the fund/s you are invested in. This is determined by your attitude to risk.

Assessing your attitude to risk should be a collaborative approach between you and your financial advisor. There are many elements involved…

• Is there a need for a particular level of growth?

• What investment experience have you?

• What percentage of your investable assets is involved?

• What time frame is expected?

• How much risk can you tolerate?

Most clients fall into the Cautious or Medium risk categories.

Choosing investment funds that match your attitude to risk includes two key components, diversification and risk management. Diversification simply means “don’t put all your eggs in one basket”. Instead your fund invests in multiple asset types such as equities, property, bonds, cash etc. Risk management involves the fund managers, not just buying and selling assets, but also manging the volatility levels (sharp movements) within a fund.

So, most of today’s pensions and investments are ushered into multi-asset, well diversified risk-managed funds. But have they helped protect investors from the financial impact of COVID-19?

Over the same five weeks when the large stock markets were down on average 35%, Medium risk (ESMA rated 4) funds are down on average 22% and Cautious funds (ESMA 3) are down 14%. When we consider the speed of this market drop and the lack of any financial or economic indicators, I’d say that they have performed satisfactorily.

If you are concerned about your own pension and/or investment fund, please contact Ifac Financial Planning on 01-4277400, we’d love to help.

To view our full Agri Outlook click here