For decades the approach of the world’s best-known individual investor, Warren Buffett, has been to commit to what he described in 2020 as “Our unwavering conclusion: Never bet against America”. So far he has been right, and it is a logical position. But the past week has shown investors around the world that their retirement savings are valued against the whims of one unpredictable American. In a few days of trading, while Donald Trump pushed the global economy towards recession, British and American workers saw the values of their pension pots and 401(k) accounts plummet.
How much? Retirement savings take many forms and the assets invested in can be very different, but we can draw some general conclusions. The median defined contribution pension pot in the UK changes significantly with age, from £9,500 for people aged 25-34, up to £189,700 for people aged 55-64. Many mid-career workers therefore have about £80,000 saved in their pension pots. Most of this would probably be invested in funds created by a provider such as Nest, which manages the pensions of 13 million UK workers (if you have an auto-enrolment pension that you’ve never really thought about, it’s probably with Nest). Nest has funds for people some way off retirement that invest mostly in equities (company shares) in order to grow your savings. These include the Nest Higher Risk Fund, which fell 7.12 per cent between Liberation Day (2 April )and Capitulation Day (9 April).
In those few days, a mid-career British worker with a mid-sized pension pot of £80,000 concentrated in this fund would therefore have seen the value of their investments shrink by £5,968 in the week of Trump’s uncertainty. Much of this value may be restored in the later half of this week as Trump capitulates further to the damage caused by his own policy, or he may double down and decide more damage is needed.
Dan Coatsworth, investment analyst at AJ Bell, came up with similar figures for the past week. A 35-year-old whose pension was invested in global equities would have lost £4,850 from a pension pot worth £50,000 on 2 April, he says, while a 55-year-old with £100,000 invested in 80 per cent equities and 20 per cent bonds would have lost £7,748 in the week after Trump’s tariffs were unveiled. Coatsworth rightly cautioned against investors taking any drastic action – “both the 35-year-old and 55-year-old should have time on their side to ride out the ups and downs of the market, and in the current situation sit tight until their pension recovers in value”, he told me.
Pensions aside, the UK’s other great savings pot is its 12.4 million ISA accounts. More than half of these investments (by market value) are in stocks and shares ISAs. Again, these are typically invested in funds, and the most popular fund on the UK’s most popular investment platform, Hargreaves Lansdown, is the platform’s own Moderately Adventurous fund, which fell 7.5 per cent between Liberation Day and Maybe That Was Too Much Liberation Day. A median ISA holder (by income) has an average of £31,014 in their account, according to HMRC, so a fairly typical stocks and shares ISA invested in the UK’s most popular fund would have declined, following the imposition of the new tariffs, by £2,329.
It’s not outlandish to conclude, then, that in a matter of days, the decisions of one erratic politicians diminished the value of a fairly typical British worker’s retirement savings by somewhere between £8,000 and £10,000. Markets have jumped on Trump’s abrupt u-turn on many of his tariffs, but the fact remains that your retirement savings are heavily exposed to the whims of someone who proposed bleach injections as a treatment for Covid-19 and who sees no risk from the climate crisis because “you’ll have more oceanfront property”.
Trump’s impact on the retirement savings of Americans was greater still. The median amount held in 401(k) savings accounts for mid-career workers (in their 40s and 50s) in the US is $150,000 to $250,000. Most are invested in “target-date” funds that, like UK pension funds, concentrate on growth while someone is working and then reduce risk as they approach retirement. Vanguard’s Target Retirement 2055 Fund would be a very popular option for millions of mid-career workers. Between Liberation Day and Okay Sure Whatever Day, this fund declined 10.5 per cent, representing a loss of about $21,000 for a typical member of the American middle class.
Again, this fund has sharply recovered, and individual investors should not make any drastic changes to their retirement plans. Most people won’t be accessing them for decades to come, and retirement savings are managed to reduce market risk the closer you get to needing them. For British pensions, the returns the market provides are only part of the appeal; the tax break you get by deferring your earnings into retirement is the more significant benefit. This is especially true at a time when the thresholds for income tax are frozen and millions of workers are being pushed into higher tax brackets.
The real damage to your finances from the Trump dip is not the short-term hit to asset values, then, but the long-term impact it could have on business investment, employment and productivity, which will translate into lower wages. And while US markets responded spectacularly to Fine I Was Bored of Tariffs Anyway Day, this confidence may not be durable.
In research published on 8 April, Goldman Sachs described the bear market caused by Trump’s tariffs as “event-driven”, in that equity prices plunged from a single shock. The bank’s research shows that over the last century, the average event-driven bear market has lasted eight months and that it has taken four years for market values to fully recover (after adjusting for inflation) from these events. The bank also warned that an event-driven slump can “easily morph into a cyclical bear market”, in which a longer-lasting reduction in market values takes hold, with still greater effects on economic activity. The bank also warns that in recent years the valuations of American companies – especially Big Tech – have far exceeded the growth of the American economy; prior to Liberation Day, America’s markets had reached a record level of valuation relative to its GDP.
For investors, this suggests a more permanent change may be necessary. For many years the world’s retirement savings have been drawn towards the returns from American exceptionalism. Trump’s ability to scorch his own country’s financial markets, and his willingness to do so, suggest that betting on America is a riskier position – one to which most of us are over-exposed.
[See also: What is Trump thinking?]
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