Our customers’ pension investments podcast

9 October 2019

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A podcast with Senior Investment Proposition Manager, Kirsty Ross

Katie Eagles and Kirsty Ross from our investment solutions team discuss what’s making the headlines and how this affects our customers’ pension investments. Share this latest episode with your clients.

[ Katie ]

Hi, I'm Katie and this is Kirsty.

[ Kirsty ]

Hello.

[ Katie ]

And we're part of the investment team at Royal London. Welcome to episode one of our brand new investment podcast. Broadcasting from Thistle Street in Edinburgh. Now Kirsty, the million dollar question -  How often do you look at the news headlines in the morning and wonder how is this affecting my pension investments?

[ Kirsty ]

Well at the risk of sounding unbelievably nerdy I think that pretty much every morning. Partly because it is my job to worry about it but also partly because I bet that everyone thinks about it all the time. But you just don't realize that's what you're thinking about.

[ Katie ]

Well let's see if you're right about that. Here at the investment podcast we're all about bringing the real world into pensions and bringing pensions into the real world. We'll take the headlines you've seen recently and break them down to help you understand how they've impacted your investments. You'll never look at a news headline in the same way again. So, let's get started.

All right. So, the first headlines I want to talk to you about Kirsty are back in July. Now the newsletter in the newspaper, sorry, headlines of that time were dramatically focusing on the UK being in meltdown as the country hit boiling point. What was that all about?

[ Kirsty ]

Yes. So we're getting a bonus two stories for the price of one here actually. So, July was a month when Boris Johnson won the Conservative leadership race and was therefore appointed as the UK's new prime minister. But it was also the month of record-breaking weather across the country. So, while we were basking in the glorious British Sun, Boris was over in Brussels preparing to go to war on Brexit on Brexit fronts.

[ Katie ]

OK. Right. Let's get the dreaded B word out of the way first. What's it been doing to our pensions?

[ Kirsty ]

So the main issue is that we didn't know then and we still don't know now what the ultimate outcome is going to be. So, all the government seems to be delivering at the moment is uncertainty  and more uncertainty which is frustrating for everyone.

[ Katie ]

And I think one of the things that most people are worrying about is how whatever happens might affect their employer. And I guess ultimately whether they're their own job is safe?

[ Kirsty ]

Yes. And that's a worry for a pension investing too. So the reason that we invest in companies is because we're seeking investment growth and business leaders are always looking for new ways to increase the value of their company and they do that by trying to increase the profit that they make each year. So, this either means that they need to spend money to try to drive more sales of their product or service or they need to cut costs, or maybe sometimes both. So if jobs are at risk that might mean that the leadership team thinks there's not so much opportunity to generate more sales or that they're struggling to cut costs in other areas. That could be a bad sign. And if your pension is invested in these companies there might be a risk that you won't get as much growth as expected or the value of your pension could even go down.

[ Katie ] 

Yeah and the things we hear about in the news about Brexit are what opportunities there may or may not be for companies and how the cost of everything may or may not go up. So, Brexit could be a potential breeding ground for those issues I guess you've just described.

[ Kirsty ]

So, we do need to think about it really carefully when we're deciding how to invest. So, at Royal London we're always really careful about the decisions we make and the level of risk we take so that hopefully we're not caught out if, and to be honest probably when, something unexpected happens

[ Katie ]

Yeah I bet you didn't expect the temperature in Edinburgh to get above 30 degrees this year? 

[ Kirsty ]

Nope. Certainly not. And but I wasn't complaining about that. But in all seriousness, this is linked to the climate change debate which was the second part of those headlines back in July.

[ Katie ]

Yeah absolutely. I mean we're experiencing extreme record-breaking weather events much more frequently and we have characters like David Attenborough and Greta Thunberg are obviously bringing climate change onto the global stage. But I mean, how does that impact pensions?

[ Kirsty ]

Well one of the impacts of the ‘Greta effect’ in the finance industry is that some types of companies are becoming less popular investments so, companies like BP and Shell who are well known very popular investments. The popularity of those is gradually starting to shift and the tech companies have actually done very well this year. So, you may have heard of the famous FANG which is Facebook, Amazon, Netflix, and Google they've all been doing particularly well.

[ Katie ]

And I know that Royal London is making a bigger commitment to responsible investing at the moment, and that's one of the factors we take into consideration. So, as well as taking into account the financial implications of things like climate change, we're also working with the companies we do invest in to try to positively improve their environmental, social and governance practices.

[ Kirsty ]

And I think that's a really good approach. Though it's not necessarily all about excluding companies but actually it's about trying to use our influential possession to make positive improvements to the world.

[ Katie ]

Yes absolutely. But I mean anyway we could spend all day on responsible investing is a whole topic in itself so we can chat about that on a future podcast podcast, but let's move on to the next headline.

So it's the other topic we all can't get enough of at the moment and that is President Donald Trump.  Now, at the end of August he declared that US firms were hereby ordered to quit China.

[ Kirsty ]

Yes. So this has actually been going on for a long time now, so over a year. The trade wars between the US and China is probably one of the biggest risks to the global economy at the moment.

[ Katie ]

And why is that?

[ Kirsty ]

Well, so China and US are two of the biggest economies in the world. So, anything that happens in either of those countries tends to impact the whole world. So, what's been happening is that the US and China keep making it more and more expensive for goods and services to move between the two countries. And you can imagine how much trading goes on between those two countries, so it's costing loads of money and it's slowing things down by quite a lot.

[ Katie ]

OK, so that will have an impact on pensions I guess, because the value of investments is dependent on the state of the global economy. Is that right?

[ Kirsty ]

Yes absolutely. And also, we do invest in American and Chinese companies so there is risk in that way as well.

[ Katie ]

What I'm interested in is how to manage these risks. So, we've got Brexit in the U.K. and trade wars in the US and China. So, it seems like there's limited choice in terms of a safe place to invest your money?

[ Kirsty ]

Yes. So one of the best things that you can actually do to manage risk is to diversify your investments. So what that means is that you put your money into lots of different investments based on based in lots of different countries across the world. And that means that you can just really manage your exposure to things like Donald Trump and your exposure to things like Brexit.

[ Katie ]

Okay I'll be honest I would find that really difficult to do myself. I just I wouldn't know where to start.

[ Kirsty ]

It's actually easier than you think. So, one of the ways to do it is to invest in what's known as a multi-asset portfolio which is ready made by the providers. So for example members of a Royal London pension scheme will be invested in a multi-asset portfolio if you've not chosen something different yourself. These portfolios invest in companies from all across the world in various ways and they also invest in things like gold and property as well. So, you actually get access to a really wide range of investments and it's Royal London's job to make sure that we get the right level of growth without taking on too much risk. And there are other ways to invest of course and but it might be best to speak to a financial adviser in the first instance if you want to find out more about that.

[ Katie ]

Of course, it is reassuring to know that if you don't make any decisions with your pension yourself then I guess Royal London still has it covered.

Thank you for that Kirsty and thanks for listening to episode one of the investment podcast from the Royal London investment team.

[ Kirsty ]

Thanks Katie.

 

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