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investment strategy4

21/01/2021

Is cash the right investment strategy for your pension savings?

Undeniably, 2020 was a year of surprises. The speed at which the pandemic escalated, the severity of the imposed lockdowns, the size of the government stimulus measures. But perhaps for investors, the biggest surprise was financial markets managing to end the year in a positive territory, in the midst of a pandemic, having regained the significant losses suffered earlier in the year. 

What did not come as a surprise to investors in 2020 though, given the current interest rate environment in the eurozone area, was the continued negative performance of cash. Since 2014, when the European Central Bank (ECB) introduced negative interest rates, we have witnessed European banking institutions charging their customers for their deposits. Even though the Cypriot banks did not immediately follow suit, over the past year they have started applying negative interest rates on their deposits too.

 

Ancoria Pension Funds 2020 Performance (Net of fees)
Ancoria Local Banks Cash Pension Fund -0.37%
Ancoria Cash Pension Fund -0.52%
Ancoria Conservative Pension Fund 1.25%
Ancoria Balanced Pension Fund 0.97%
Ancoria Growth Pension Fund 1.44%

Naturally, our Ancoria Local Banks Cash Pension Fund, which invests in deposits of Cypriot banks, couldn’t remain immune to this development and this was reflected in its performance for 2020. This follows on the tracks of the Ancoria Cash Pension Fund, which started experiencing negative performances a few years earlier. As the ECB is not expected to significantly alter its policy in the foreseeable future, negative interest rates should be considered as the new norm. By consequence, the performance of these two funds is also expected to remain negative in the coming year.

Being invested in the right investment strategy is the key to achieving your financial goals, but it becomes even more important now that cash is yielding negative returns. If you are solely invested in a cash strategy at the moment, it means that your pension savings will steadily experience small decreases in value. When you are nearing retirement and are mostly focused on preserving your pension savings, these small decreases may not affect your savings significantly, but will instead protect it against any fluctuations that other strategies often experience in the short term. However, when you are still some way from retirement and should be mostly focused on growing your savings, being invested in a strategy that does not keep up with inflation and consistently loses value, can jeopardise your likelihood of achieving your financial goals for retirement. Now, more than ever, it is paramount to ensure that you are invested in the strategy that matches your investment horizon, investment objectives and tolerance for risk.

Do not hesitate to contact us if you would like to discuss your investment strategy with us.