THE 2022 financial market upheaval negatively impacted the performance of stocks, bonds as well as cryptocurrencies, and took investors on a roller-coaster ride.

The first quarter of 2023 also began with much uncertainty in the financial markets. But the second quarter has started to show signs of improvements in the global stock markets, and some investors are optimistic. Inflation rate is still high but the rate is expected to trend down. For 2023, the International Monetary Fund (IMF) is forecasting an inflation rate of 7 per cent for the global economy, down from 8.27 per cent in 2022. In Jamaica, the Bank of Jamaica (BOJ) has reported that due to its monetary policy as well as global developments, the inflation rate fell from 8.1 per cent in January 2023 to 7.8 per cent in February.

However, the report from the BOJ Monetary Policy Committee noted that “core inflation”, which excluded the prices of food and fuel, declined from 7.1 per cent in January 2023 to 6.6 per cent in February 2023. This means that based on the Consumer Price Index four to six per cent by December 2023.

As investors learn more about the impact of inflation on their savings and pension funds several contributors and investors have committed to staying the course by remaining in their pension funds and long-term investments. They anticipate a recovery in the financial markets in the near future. Pension funds in particular suffered major declines on a global scale. But some pension contributors are just now connecting the dots and understanding that global conditions such as the price of grain, fuel, and shipping prices played a role in spiking inflation. Monetary measures, including interest rate hikes to curtail inflation, have reduced gains in their pension fund.

Global stocks are currently showing an upward trend. A well-diversified portfolio of assets in pension funds for the long term is recommended. Locally some pension contributors got a wake-up call from the decline in their retirement funds. But these employees should not “jump out of the frying pan into the fire”. If your pension funds were giving good yields prior to the declines of 2022, then stay invested. There is the temptation to transfer from one pension fund to another. But transferring from one pension fund to another at this time may not be the best option. It’s best to be patient and allow funds to recover losses, and please remember that there are also fees associated with pension funds transfers.

Recovery may not happen overnight, and retirement planning is not an overnight or short-term objective. The average retiree may spend upwards of 25 years in retirement. Your actions today will determine the quality of life you will enjoy when retired.

An inspiring story

This week I met with a retiree who shared an inspiring story. She retired a few years ago and has a well-diversified portfolio of investments. Even though her long-term investment has suffered declines over the last three years, she is determined to remain on course with her retirement plans. Her financial goals haven’t changed and the uncertain financial environment provided an opportunity for her to learn more about investing. Upon retirement, she relocated from her dream home to another town where she purchased a new home that was closer to amenities like hospitals, pharmacies, supermarkets, police stations, and entertainment, as she was the caregiver for her ailing father.

With the passing of her father, the rental income from her dream home is invested and she now enjoys the comfort of a compact dwelling. Her pension income is sufficient to meet her needs. She said that she can afford to leave her stock portfolio untouched for another 10 years or more. She now plants vegetables at home which she sells to her neighbours and is currently looking at starting a business in horticulture as she has a large variety of plants that she cultivated as a hobby during her working years.

Hers is a good story for employees who are seeking the opportunity to learn about investing and the importance of saving for retirement. Some have seen their ageing parents or other elderly people struggle in retirement, and while there is a willingness it can be very difficult for some to undertake activities for loved ones, especially in tough economic times.

Pension funds are invested to provide an income in retirement that never stops. Employees who started contributing to a pension fund in their 20s and 30s, and make regular contributions for another 20 or 30 years, will benefit from the compounding of tax-free earnings that will ensure there is sufficient buffer to withstand temporary losses in the pension funds. But regardless of the economic times, don’t sabotage your future by refusing to invest. If you are still working, think about the quality of life you desire and the activities you want to enjoy in retirement and stay invested.

Financial literacy is the way forward to financial security.

Grace G McLean is financial advisor at BPM Financial Limited. Contact her gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com