32 yo, is it the value of the fund or the number of units that counts?

C

contractor

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Hi,

I am 32 years old and I have been advised that I should not be concerned about the value of my pension fund, that it is the amount of units that counts. The logic being that the more units I have, the more they will be worth when things eventually recover. I'm not sure if this is true. Surely the stock brokers are selling units and not just buying them? And in the current climate would they not be selling them at a loss?

Thanks.
 
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This is true where you are continually buying units through regular premiums.

Think about it, you bought units in the past at a higher value to what they are currently worth. If you are still buying units then you are buying them at a cheaper price than the previous ones purchased.

When/If funds recover to previous levels or even recover back moderately, you make a gain on the units you purchase now. This gain will offset any losses on units you purchased at the top end of the market.

You have 30 years to go to retirement and plenty of time for markets to bounce back. I would not let current market situation bother you. If you are regularly buying units at the moment you are getting them at relatively low prices.
 
contractor said:
Hi,

I am 32 years old and I have been advised that I should not be concerned about the value of my pension fund, that it is the amount of units that counts. The logic being that the more units I have, the more they will be worth when things eventually recover. I'm not sure if this is true. Surely the stock brokers are selling units and not just buying them? And in the current climate would they not be selling them at a loss?

Thanks.
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You're right, it is the value you should be concerned about.

If you had 100 AIB shares worth €2000 last year they would be worth about €50 this year.

You still have 100 AIB shares but that does not mean you are as well off as you were last year.

The cheap units arguement effectively assumes that you can sell at a predetermined price in the future.

The cheap units arguement discounts any current share price movements as irrelevant to the future.

That is an absolute joke. The share price moves because the future prospects of the stock change.

You may recover some of your current losses in the future by staying invested. You may even earn a good return on your future contributions.

People who talk about cheap units generally advise the right actions i.e. invest regularly for the long term, but the reasons they give just do not stack up
 
Hes not talking about share price in fairness so your AIB example is a bit misleading. Hes talking about pension fund unit prices.

The regular saving argument about buying cheaper units does stack up and is not a joke. The pension contributor only takes a hit if the value of his fund is down at retirement age (ideally the pensioner moves to more secure funds the closer he/she gets to retirement age). This is not applicable to this enquirer as he/she has another 30 years or so to go to retirement.

Like selling a house, its only negative equity if you sell and take the loss. This person will not be selling his/her units any time soon so just looking at values now can be misleading as pensions are a long term investment product which flucuate in value all the time. Over time these flucuations even out if the contributor makes regular contributions both in good and bad times.
 
StevieC said:
Hes not talking about share price in fairness so your AIB example is a bit misleading. Hes talking about pension fund unit prices.

The regular saving argument about buying cheaper units does stack up and is not a joke. The pension contributor only takes a hit if the value of his fund is down at retirement age (ideally the pensioner moves to more secure funds the closer he/she gets to retirement age). This is not applicable to this enquirer as he/she has another 30 years or so to go to retirement.

Like selling a house, its only negative equity if you sell and take the loss. This person will not be selling his/her units any time soon so just looking at values now can be misleading as pensions are a long term investment product which flucuate in value all the time. Over time these flucuations even out if the contributor makes regular contributions both in good and bad times.
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Unit prices are largely made up of shares (with some cash and bonds also). The value of the majority of these shares has fallen, mainly for legitimate reasons. Some have no hope of ever recovering e.g. shares in nationalised banks.

The mechanics of price movements in pension fund units are no different from share price movements. If you believe shares are undervalued that is one arguement but it would be misleading to imply that people will, with certainty, recoup all the losses they have made to date if they hold on long enough.

It is also misleading to imply that shares or units are good value now for no reason other than the fact that they are worth less than they were last year.

For the record I am continuing to invest regularly as I do believe it will be worthwhile in the longer run. I may have lost 30% of contributions I have made to date, and I'm not holding out great hope of recovering this, but I do hold out hope for a reasonable return on current and future money I invest in the longer run
 
I think we are both singing from the same hymn sheet. My point was exactly as you said in your last paragraph, current and future regular contributions should make a decent return to offset past losses.

I dont forsee BOI going back to €15 a share anytime soon but by buying units in a fund that invests in BOI, there is plenty of scope for growth when its at €0.20 to €0.30 at the moment.

I dont have a crystal ball but I do believe that markets rise and fall and even themselves out over the long term and that the value of your fund only matters at maturity. This individual has plenty of time for his fund to recover somewhat and for future contributions to grow.
 
Thanks for the advice guys. I am making regular monthly contributions. So from what you are saying, when a stock broker buys shares for my pension fund they are kept until retirement? My worry was that they are constantly trading shares, as in selling as well as buying.
 
Insurance companies buy and sell a bit as the asset percentages vary from month to month. They normally sell stocks or gilts or property to benefit the fund and reinvest in another asset. Its at the asset managers discretion.

The fact you are making regular contributions however and have a long time to go to retirement means that hopefully the worlds current woes will not impact your fund too significantly.
 
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