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Advisers cite risk of stock market collapse as major threat to retirement investing 

  • Biggest concern is lack of client understanding of under-saving risk 
  • Regulation and sequencing risk also flagged as threats to retirement objectives 

A stock market collapse is one of the biggest risks for clients’ retirement savings on the horizon in both accumulation and in drawdown, according to financial advisers*. This is tangible evidence that concerns in global markets about the prospects for investments and pensions after ten years of positive returns, one of the longest bull runs in history, is also an immediate worry to advisers too.

When asked ‘What do you think is the biggest threat on the horizon to retirement investing (accumulation)?’ 22% said a stock market collapse, the second most popular answer after lack of understanding of risk of under-saving (31%). Regulation was also seen as a major concern at 15%, while inflation registered at just 1%. 

Likewise, in drawdown a stock market collapse was one of the top three concerns at 14% behind under-estimating one’s own life expectancy (22%) and sequencing risk (15%). Sequencing risk can be caused by the sequence in which withdrawals are made from the portfolio that may be adversely affected in weak market performance.

Alistair Cunningham from Wingate Financial Planning’s said: “Clearly advisers are concerned that the bull market of the last decade cannot continue much longer. While there is no imminent sign of a stock market collapse, the FTSE All Share Index has experienced high volatility recently, a fall of 3.5% in the first week of October. In an era of ultra-low interest rates and bond yields, generating income for clients and maintaining portfolio values would be extremely difficult in the event of a major market correction and the Government doesn’t seem to have many stimulus tools left. It will happen at some point, so investing defensively is not a bad idea.”

Justin Taurog, Managing Director of VitalityInvest, said: “The view of advisers is that there are many threats on the horizon. This means there is a role for us as a business, the wider industry and government to help educate investors about the danger of under-saving for retirement, and to provide solutions to help protect the value of people’s savings. 

“Sequencing risk is a big concern and we believe multi-asset income funds can play an important role in mitigating this risk. These funds provide controls for drawdown by generating stable, sustainable income yield to ensure resilient returns in all market conditions, including in a bear market when equity markets are falling. The point of having an allocation to a multi-asset income strategy is to maximise the opportunities for compelling risk-adjusted returns, while also replacing the low-risk part of investors’ portfolios in a market where bonds are expensive and provide little income.”