2022 was an exceptional year. A year in which both equities and bonds depreciated considerably. In this article, we give a brief overview of what happened in the stock market last year and its impact on retirement.
The year of geopolitical tensions, high inflation, and rising interest rates
The beginning of the year was dominated by geopolitical tensions: Russia’s invasion of Ukraine with global sanctions against Russia as a direct result. This also had an impact on commodity prices, which shot up. Energy costs rose and we faced high inflation worldwide. Whereas in the Netherlands, we had actually been experiencing low inflation for a long time. After central banks stopped buying bonds in the market, they raised interest rates in several steps in 2022 to limit high inflation.
Many equities fell considerably in value in 2022 due to the interest rate hike and inflation fears. This did not apply to all stocks, by the way; there are also companies that have benefited from increased commodity prices, for instance. Even bonds considered more secure were also hit hard by the big interest rate hikes. Corporate bonds were even doubly hit, as credit spreads (interest compensation for credit risk) also widened.
Impact on pension
We saw negative returns last year for all ages and profiles. Incidentally, this need not immediately lead to a lower pension. When someone gets close to retirement age, the negative returns are mainly caused by increased interest rates. These increased interest rates also affect the final pension that can be purchased. After all, that will also become cheaper. Our goal towards the retirement date is to keep the final pension as stable as possible. Despite negative returns, this has worked out well. Read more about how we do this.
If retirement age is still far away
When retirement age is still some time away, the outcome is largely determined by equity returns. A negative return is of course annoying, but it is part of investing. The important thing is to achieve a nice positive investment result on average over the long term. A year with a negative result can still be made up with future returns. In addition, it should not be forgotten that positive returns have been achieved in recent years, including very high returns in 2019 and 2021.
At BeFrank we invest your pension capital on a diversified basis. We invest throughout the world in numerous companies, sectors, and investment categories (equities, bonds). This diversification reduces risks. Furthermore, pension capital is automatically invested less in categories such as shares as retirement age approaches. At BeFrank, employees decide how much risk they want to take with pension investments and how investments are made. They can change this themselves at any time on their personal pension page.
Constant insight into returns
Every quarter we publish the returns of the various life cycles on our website. And employees can track their investment returns 24/7 through the app and on the personal pension page.