2023 was a good year with both equities and bonds appreciating substantially, after experiencing a significant decline in 2022. Interest rates and inflation fell and financial markets recovered. In this article we will provide you with a brief overview of what happened to the stock market last year and the associated impact on your pension.
Since 2022, the central banks of developed countries have tried to counter strong inflation by gradually raising interest rates. They stopped doing this at the end of 2023. Inflation fell but it still above the 2% target. Central banks now want to avoid slowing down economic growth too much. The conflicts we saw in the world last year did not cause a major impact on the stock market.
Positive returns on equities and bonds
Both equities and bonds performed strongly in 2023. As regards equities, we see that the tech sector in particular is doing well, especially the ‘Magnificent 7’. This name is used in the finance world for a group of seven major US tech companies, including Apple and Tesla. These companies have a big impact on returns on equities due to their strong financial performance and large market share.
Bonds are doing well as capital market interest rates fell for the first time in three years. The central banks stepped on the brakes with interest rate hikes and the market expects interest rate cuts to return next year. In addition, corporate and emerging-market bonds have done well.
Impact on your pension
We saw positive returns last year for all ages and profiles. This is good news for both younger and older employees. For younger employees, we want to achieve a positive investment result in the longer term. This allows the pension capital to grow and these employees to eventually purchase a good pension. For older employees nearing retirement age, we increasingly focus on keeping the pension as stable as possible. We take limited risk with equities, for example, as there is less time to make up for a possible shock just before retirement. This does not mean that the value of investments always remains stable. In 2023, we also achieved positive returns for older employees. These are necessary because the falling interest rate means that buying a pension has become slightly more expensive again. Read more about how this works here.
Diversification ensures risk mitigation
BeFrank invests pension capital in a diversified manner. We invest throughout the world in numerous companies and sectors and in equities and bonds. This diversification limits your risks. Furthermore, as retirement age approaches, we automatically invest pension capital less in categories such as equities. 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 using the Profile Selector on their personal pension page.
Always keep an eye on your returns
Every quarter, we publish the returns of the different lifecycles on our website. And employees can track their investment returns where and when it suits them using the app and on their personal pension page.