The war’s effect on your savings: Read Lifeplan CEO and founder’s thoughts
The war in Ukraine leaves nobody unaffected. Just a few hours away from Sweden, people are fleeing a horrible war situation and don’t know when they will be able to return to their homeland again. As the war continues, in addition to fears about what will happen and worries over if other countries might become involved, there is also economic turbulence. Lifeplan, which offers personalised and scientific advice to hundreds of thousands of pension savers, urges people to hold their nerve. Lifeplan’s CEO and founder, Kalle Erlandzon, PhD in financial economics, shares his views on how Lifeplan is dealing with the current situation and why proper risk diversification means that you are probably better off than you might think.
The war in Ukraine has shaken financial markets around the world. The Stockholm Stock Exchange is one of the stock markets that has collapsed the most during the year (-19%) and, in addition, the Swedish crown (SEK) has weakened a lot against the US dollar (-8%) during the same period. Therefore, it’s not so strange that many are worrying about their pension savings. However, those who have followed the advice we have given generally don’t need to be as worried, because the global situation is not as difficult as the Swedish Stock Exchange.
Relatively stable with good risk diversification
It’s fairly common that the Swedish Stock Market and the Swedish crown is weakened by turbulence from the financial markets. That’s one of the reasons that it’s important to spread the risks in your savings between different markets and sectors. Lifeplan guarantees a good risk diversification for every customer’s pension savings, and the effect is clear this year, as no customer’s savings have decreased more than a few percent in value since the turn of the year, regardless of the level of risk in their overall investments.
This is partly due to the fact that equities in developed markets such as the USA, Europe and Japan have indeed fallen, but not as much as in Sweden, and that this has largely been offset by the weakening of the Swedish crown against corresponding currencies. An example is the US stock index S&P 500 which is down 10% calculated in local currency (USD), but is only down 2% against the Swedish crown. Emerging market equities have developed somewhat better during the year, and overall the global development has been relatively good from a Swedish investor’s perspective. With that said, the future is uncertain even for global equities and also for the Swedish economy in general.
What should I do now?
Lifeplan carefully follows how the financial markets are affected by the war in Ukraine. The war and the resulting sanctions against Russia have had negative effects, and the markets immediately takes into account any further likely negative consequences. This is why developments can happen fast when new information emerges. The thing to remember is that the market immediately takes new information into consideration and adjusts the prices accordingly, and that it’s virtually impossible to predict how the markets will develop in the near future.
Don’t try to predict the market
The best thing you can do now is not trying to predict how the market will develop. Tactical decisions, to increase or decrease equity exposure, must be correct in 70% of the time in order to increase the risk-adjusted returns. Studies show that if a fund manager tries to time the market by increasing or reducing risk exposure, they will often lose more compared to if they had adopted a more passive strategy.
Fear is a common cause for investment mistakes
To act on the emotion of fear is not rewarding when it comes to savings. In turbulent times, many individual investors will worry about how the stock market will develop and choose to sell their equity holdings. This is an investment mistake that rarely pays off. Selling shares during a decline is generally not a good idea since it is effectively impossible to predict at what time the markets will again rise. During the corona pandemic we saw a clear example of this, and we witnessed yet another one during the financial crisis of 2008. Many private investors sold their equities after the decline and didn’t enter the market again until after the stock market had already improved significantly. This cost a lot in the form of reduced returns. Your gut feeling may tell you to sell everything immediately, but this is a time to consider the scientific findings and act rationally – which means keeping calm, not rocking the boat, and waiting to see how things develop.
Trust Lifeplan – we help you
Lifeplan gives you independent investment advice based on scientific research, which means that we contact you when we see that you need to adjust your investments. We continuously analyse the market and have many years’ experience of long term investing. Our service stems from the world’s latest scientific findings. Therefore you can trust that your investments are in safe hands, even when there’s a war just a few hours’ travel away. We are constantly monitoring the situation.
You are welcome to ask questions
As a user, if you want to change the risk level in your pension savings anyway, you can simply do this through logging in to Lifeplan. We will then get back to you with an investment proposition for long-term savings based on your preferences. If you have any questions, you are always welcome to contact our support by telephone on +46(0)31-109870 or email email@example.com.
Kalle Erlandzon, PhD
Published: 10th of March 2022