Monday, May 21, 2007
Worried about credit risk?
The Economist: You should fret more about pension funds than banks
The main answer is the Basel 2 banking accord, due to be introduced next year. In terms of banking, it has plainly had a healthy effect: banks have strengthened their risk-management systems and spread their risks—so much so that many should be able to hold less capital against their loans. The danger, however, is that by focusing on the health of banks, the regulators have shunted problems into less supervised realms of the financial system, such as the pensions industry. If pension-fund trustees, with less experience than banks in judging credit risk, have allowed the wrong investments, the consequences would be grave indeed.
Add to this the fact we are about to resume a secular stocks bear for another decade. Also add in the baby boomers retiring from 2010 who will cash up.
6 Comments
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1. sold 2 rent 1 said...
I have switched my pension pot to a UK Treasury Gilts Fund
2. bidin'matime said...
But is it a good time to be buying Gilts, with yields so low? Rising IRs make deposit accounts attractive and fixed interest bonds less so - the 'flight to quality' may stop as everyone realises that they are accepting silly (low) returns and decides that the boring old building society account offers a better return. Of course, we are then faced with the risk of collapses there, but if they receive a 'windfall' of investment funds, then maybe that will help them out enough. At the end of the day, if millions of homeowners are going to struggle on, working all hours and doing without, so that they can pay the mortgage and keep the house, maybe being on the other end of that deal, ie as the provider of funds to the lender, will turn out to be a profitable venture...
3. sold 2 rent 1 said...
bidin,
While Index linked gilts only offer between 1-3%, I have gone for normal gilts offering between 4-8%
In a liquidity crisis, I prefer liquidity over high return.
4. enuii said...
Got an old endowment (no longer servicing a mortgage) that has less than 5 years to go, I am going to make it paid up this week as I see future returns on new unit purchases being too low and too risky in the amount of time it has left to run. I am also considering selling/surrendering it and moving the cash elsewhere but in the near term I will wait and see. Anyone else got any thoughts on this plan?
5. Rocket Robbie Mtt45 said...
S2R1,
I mentioned to my boss that i was thinking of cashing in my stocks & shares ISA with Co-funds and he thought i was daft for trying to second guess the financial market which i know little about, which is true but from what i have read on this website i think your right and want to follow suit. The probem i got is what to do with the money. Where can i put it with a sensible return? I have wanted to ask you for a whicle now but felt to cheeky to ask, i hope you dont mind.
6. sold 2 rent 1 said...
I have cashed in my unwanted endowment.
The fund is worth 25K and the surrender value is 15K. I'll take that.thankyou.
I am extremely bearish on stocks right now.