27 October 2022 - 7 min Reading time
In these exceptional times, characterized by geopolitical, economic, monetary, and climate-related challenges, it is crucial to remain rational and not succumb to emotions and/or fear.
Therefore, BEAMA puts forward the following recommendations:
These are exceptional times for investors, partly due to the ongoing Ukraine-Russia conflict and supply chain issues, which have kept energy and commodity prices high. Additionally, Europe's current sustainability commitments are directing us toward more expensive/alternative forms of energy/electricity generation.
These factors contribute to the exceptionally high inflation we are currently experiencing. As a result of persistent high inflation and concerns about a recession, the prices of most global stocks are visibly declining.
In response to high inflation, central bankers are steadily raising interest rates, which has a counterproductive effect on economic growth and the valuation of bonds (which lose value as interest rates rise) and stocks (especially growth stocks). We are currently in a situation of positive correlation between bond and stock price movements.
In normal circumstances, the movements of bonds and stocks are negatively correlated. When one of these types of financial instruments records losses, the other type often registers gains, thereby dampening the overall effect.
There are also several signs indicating that the Covid-19 pandemic is not yet fully under control.
The result of these geopolitical, climate-related, economic, monetary, humanitarian, and other issues is that there is currently a very high level of uncertainty surrounding the global economy. Financial markets do not thrive in uncertainty, and this has already led to significant volatility
Exceptional financial times require us to remain rational and keep a cool head. Asset managers guide investors through these volatile times.
Many investors have seen the value of their investments decline significantly in recent months, including the 1.78 million Belgians who engage in pension savings through a pension savings fund. The average return of pension savings funds for the first six months of 2022 is -15.3%.
This represents a significant negative value correction. However, in the context of third-pillar pension savings funds, BEAMA highlights the following points:
Pension savings is a long-term product, so pension savers should not focus too stubbornly on short-term returns, which can be quite variable.
Over longer periods (≥ 10 years), pension savings funds, on average, comfortably outperform inflation.
The European Union's long-term inflation target is around 2%.
In 2021, 3/4 of subscriptions were eligible for a 30% tax deduction (maximum deposit of 990 EUR), and 1/4 were eligible for a 25% tax deduction (maximum deposit of 1,270 EUR).
In 2021, there were subscriptions totaling 1.078 billion EUR eligible for tax reduction. Additionally, there were also subscriptions associated with switching to another pension savings fund.
In 2021, subscriptions eligible for tax deductions amounted to 1.078 billion EUR, and there were also subscriptions related to switching to another pension savings fund.
According to BEAMA, individual pension savings are crucial to maintaining prosperity after retirement and addressing the aging population issue.
The above observations for pension savers naturally apply to investors in other types of funds as well. They too often have to contend with noticeable negative returns during the first half of 2022.
However, it is important to remain rational and not get carried away by emotions and fear. Therefore, BEAMA puts forward the following recommendations: