The Unaware Investor
hjb
At 23, I became an investor, and likely so were you
In the United Kingdom, when we start our first job out of university we are often auto-enrolled into a pension. Unless the employee states otherwise to their employer, which is done in the from of an ‘opt-out’ selection, we are all investors.
Often our pensions are the longest time horizon investment we make.
Being thrown into one automatically, can often be slightly blind sighting, but never one we should be annoyed about.
Despite the fact you are locked into a pension until roughly 55 years of age, with it increasing to 57 in the UK from 2028. For those who sighed about this money being out of reach until then, it's disappointing, but don’t lose hope.
You are effectively getting free money from your employer and that your pot (fund) can historically grow over time during the period you work and that you will benefit enormously, if you start early.
It all sounds too good. It is for the large part - until it isn’t. But, that’s investing for you.
A pension fund invests in the same way an Exchange traded fund would invest, each fund will invest into certain companies depending on their performance, risk appetite and growth trajectory. Pensions funds usually invest heavily in S&P 500 and FTSE 100 companies, because of their potential for long-term growth and diversification. The likes of Apple, Meta, Nvidia, Microsoft are the bigger players here. People buy, use, sell, talk about these products everyday.
So, when you invest in a pension pot, you are effectively investing into a fund, and that fund has a diversified selection of these large companies, and you are hoping that these companies perform well, so that once you turn 57 you can retire a millionaire.
Invest early and consistently, and you can be like the bros
They invested into their pension early, and benefited enormously.
The dude on the jetski is living life.
Risk Tolerance
Not every fund will invest in the same companies, this will depend on your risk tolerance, usually for pension providers they range from a 1-7 rating (1, being least risk averse, and 7 being most risky) - I fall around the 6 mark. I’m under 30, I have a steady income and my risk tolerance is higher due to, hopefully, more time/years in the market. Yet, for each person this differs.
A phenomenon which is great is being able to track your pension daily through savvy mobile apps.
Truly this is where mindset and psychology of money plays a huge part. No one like to see their fund drop, hearing the markets are crashing and you are unsure about why you even started investing in a pension is tough. However, it’s best to distance yourself from that noise.
The reality is, your pension fund over the course of 40+ years will fall and rise a dozen times, if not more. The reality is investing is risky, yet checking your funds performance continuously is pointless, let the pension fund managers to that. Their analysis and appropriate allocation of your capital is what they’re paid for.
Your job - continuously invest into the pension, whether 3% (minimum in UK), 5%, 7%, 10%, 15% - whatever it is. Your employer will often match or double the amount you allocate. It should be instinctive.
A final thought from me:
One think I do practice is mindful investing, ethical investing and investing done in a way that is compliant with my beliefs.
Checking the origins of your pension fund, in terms of the companies they invest with is imperative. I’ll include some details on that in another post.
On an endnote, investing doesn’t always begin with a solid goal, strategy or vision, sometimes you can be thrust into it. As I was, and many of you are.
