PFA’s chief strategist and an independent wealth adviser have told DR that most people with a Danish pension should leave their risk profile untouched after a week of sharp stock swings, with savers close to retirement the one exception.
In an article published on November 14, DR reported that figures from the pension company PFA show the typical customer has lost thousands of kroner over the past month. PFA chief strategist Tine Choi Danielsen said the recent swings should not make savers rethink their pension strategy.
According to Choi Danielsen, risk profiles should normally be changed in connection with major life events, such as marriage, having children or retiring. Large financial events in a person’s own life can also justify a change, she told DR.
Independent wealth adviser Nikolaj Holdt Mikkelsen took the same line. As he explained to DR, moving up and down is part of investing in financial markets. Shares offer a higher expected return than short bonds or cash, but the price is bigger swings along the way.
The week of swings behind the advice
DR noted that the S&P 500 index, which covers 500 of the largest American companies, dropped 4.4 percent, with AI shares hit hardest. AP dated that fall to November 5 and reported that Nvidia alone fell 9.3 percent, the heaviest weight on the index.
Three days later the same index rose 2.6 percent, its best day since April, DR reported. Volatility then returned with the scandal around Nvidia chief executive Jensen Huang. Bloomberg reported that Nvidia shares slid 4.3 percent on Monday, erasing close to 200 billion dollars in market value, after Huang disclosed a romantic relationship in a memo to employees.
Nvidia confirmed in a press release on November 12 that Huang had resigned as president, chief executive and board member with immediate effect. CNN reported that the shares had fallen 12.75 percent over the week to Friday’s close, wiping out roughly 573 billion dollars in market value.
Who should take a look, according to PFA
Choi Danielsen said one group should still review its pension plan. That is people approaching retirement age, when the money starts being paid out, who should look at their overall finances and consider whether a high risk profile still lets them sleep at night. She advised that group to talk to their adviser.
Pension companies typically offer three risk levels: low, moderate and high. The higher the risk, the more shares the portfolio usually holds, DR reported. For savers more than ten years from using the money, Choi Danielsen said there is time to recover losses. Holdt Mikkelsen added that many Danes already use life cycle products, where investment risk is lowered gradually as retirement approaches.
What this means for internationals with a Danish workplace pension
Most employees in Denmark pay into an arbejdsmarkedspension, a workplace pension set up through the employer and often fixed in a collective agreement, alongside their salary. The risk profile, low, moderate or high, is chosen by the saver, and the share of equities rises with the risk level. Choi Danielsen said time horizon is the most important factor in that choice, and that a 30 year old starting a pension can hold a large share of stocks.
The exposure is substantial. DR has previously reported that up to 30 percent of Danes’ pension savings are invested in US stocks, with heavy weight in tech companies. After the November 5 sell off, DR reported that customers with the highest risk profile lost up to 2.6 percent of their savings, equal to 26,000 kroner per million, based on figures from Danica.
For foreign residents, the practical point from both sources is the same as for Danish colleagues. Savers more than ten years from retirement have time to recover, according to PFA, and life cycle products reduce equity exposure automatically. Only those near payout are advised to review their situation with their pension adviser.
