Over the last few weeks and months we have seen numerous headlines in relation to the Irish Pension industry, it looks as though we are entering a period of reform and individuals will be forced to take action themselves. Below are my Three key components in order to operate and maintain a successful pension scheme.

Timing

It is important to note that it is impossible to time the markets, yes some individuals can get it right but very few people get it right on a continuous basis. One of the most common faults for regular investors is the fact that they allow short term events influence long term goals. It is important to outline and establish long term goals and hold positions through times of uncertainty. Studies have shown that those trying to time markets generally achieve lower real returns than those who hold positions in line with long term goals.

When markets peak and investor confidence is high, usually all the headlines attract yield hungry investors to the market and they purchase at the top of the market. In falling markets, regular investors panic, sell at the worst possible time and obtain a financial loss. It is important to know at what point you are entering the market because poor timing can result in substantial short term loss.

Portfolio Allocation

Portfolios need to be designed according to an individual’s appetite to risk and long term needs. It is important that portfolios are constructed in such a way that this is replicated. Many individual investors can be attracted to ‘hot funds’ or ‘best performing funds’ from the previous year. It is important to note that typically the best-performing funds in one year are not necessarily the best performing in the following year, so it is important not to be attracted to individual year performance figures a long term average is usually a more solid indicator.

Review

As we all know cars are moving vehicles, similar to pensions. Pensions are financial vehicles with moving parts. Just as a car needs a regular service so to do pensions. When your car needs a service you take it to a mechanic, when your pension needs a review you bring it to your financial advisor. So what makes the car move? Its wheels, in pensions the moving parts are the asset classes in which your money is invested in (Bonds, equities, commodities, cash), just as cars can break down and need fine tuning so to do pensions. In order for  pensions to run as smoothly and as efficiently as possible, and in turn generating the best returns possible they need to be reviewed on an annual basis.