Neptune’s Geffen: Pension savers are not taking enough risk
Geffen, who runs the Neptune Global Alpha fund, said investors are overly reliant on “safe” low yielding cash and bonds to fund their retirement, but the sum of money they will receive at retirement will fall far short of their expectations.
“I believe that investors are simply not willing to accept enough volatility in the price of their investments when younger in life. For those of us who are still some way from retirement, we must remember that our pensions are going to have to deliver the income we need for a prolonged period of time,” the manager said.
He noted that 20-30 years ago pension pots at retirement were determined by the profitability of employers, rather than the success of worker pension contributions. However, how a pension pot performs is now more important than how many years a saver works for an employer.
He said: “We will require substantial pensions to take us through long, happy and active retirements in the manner to which we would like to become accustomed. In this slow return environment where rates on cash are extremely low, you really cannot afford to miss out on years where you’re going to get 18 – 20% from stock markets. Now, as you approach retirement, the life span of your pension fund has been expanded by at least 15 or 20 years.
“I believe that rather than experiencing a long period of stagnation, the world economy is growing solidly. This will ultimately mean inflation will return. The long-term pattern of returns teaches us that shares are the right investments to beat inflation over the long term.
“To illustrate this, between the years 1900 to 2013, the real value of global equities, with income reinvested, grew by a factor of 325.0 as compared to 8.4 for bonds and 2.7 for treasury bills. I also believe that there are a number of stockmarkets around the world that have the capacity to grow significantly in the coming years.”
Geffen highlighted Japan and the US as two examples – around 90% of the Neptune Global Alpha fund is invested in these two countries.
“In Japan, a powerful cocktail of reforms, put in place by Prime Minister Shinzo Abe, can lift the economy out of two decades of economic malaise. In addition, the US economic recovery sees no sign of abating,” he said.