US North Korea crisis hits stock market raising fears for pension savings | Personal Finance | Finance

Britain’s top stock market the FTSE 100 slipped by around 0.6 per cent, as a war of words erupted between US president Donald Trump and North Korean dictator Kim Jong-Un.

And US stock indices the Dow Jones and S&P 500 are down for the second day in a row after the North Korean dictator threatened a missile strike on US bases in Guam.

Pension funds that holds billions of pounds worth of retirement savings are typically invested in the FTSE 100, meaning savers could see values fall amid sell-offs.

At the moment stock falls have not been too dramatic – the bluechip index is at a higher level than it was a week ago.

But if relations between North Korea and the US worsen stock market losses could deepen.

Kathleen Brooks, research director at City Index Direct, said: “Whether or not this event causes a prolonged downturn in risky assets will depend on the next steps in this crisis.

“If the rhetoric from both sides continues to ramp up then we would expect the following to asset prices to struggle: Global Indices, emerging market foreign currencies and peripheral sovereign debt.

“Of course, this could end up being a flash in the pan, so we don’t think that fund managers and traders are going to rush into changing their portfolio allocations just yet, they will want to see how things play out in the coming days.

“However, if the rhetoric does ramp up, even without actual nuclear follow through, this could spook the market and make it hard for stock indices to rally into late summer due to the fears for global trade and global growth.

“The markets are poised for any commentary from the President and Washington regarding North Korea’s threat to attack the US territory of Guam.

“If we see an escalation of the rhetoric then this sell off could be more than a flash in the pan.”

Stock market falls can hit pension values, but savers who are not set to take their savings for a number of years typically don’t need to worry, as losses are usually recouped over the longer term.

However, savers who are drawing from pensions that are still invested, through income drawdown plans or through lump sums of cash, should err on the side of caution when stock values are falling.

Selling investments to fund withdrawals could damage income prospects later down the line.

When values are falling it’s better to simply take income produced by bonds or dividends.

If savers sell investments when they are at a low, losses are locked in and more may need to be sold to generate a desired cash sum.

This could damage income over the longer term as the pension pot losses its value faster and could mean savers run out of money.

However, this can be avoided by only taking income to leave the underlying investments intact – this is known as taking the natural yield.

If you can afford to, it could be better to take smaller cash sums when the market is lower.

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