With the FTSE 100 going past 8,000 for the first time, should I be taking more investment risk with my pension? I am 45 years old and not planning to touch my fund until my late 60s, all being well.

Paulo 

Tom Selby, AJ Bell Head of Retirement Policy, says:

It is worth explaining exactly what the FTSE 100 is before digging into the things you need to consider when investing your retirement pot.

The FTSE 100 is simply an index of the 100 largest UK-listed companies. There are other FTSE indices, such as the FTSE 250, and different countries, regions and sectors have their own indices too.

When the FTSE 100 was first created in 1984, it was set at a notional value of 1,000. You can see from the table below how long it has taken for the FTSE 100 to reach each 1,000 milestone. While growth in the first 15 years or so was rapid, the last 20 years has been more of a struggle.

In short this means nothing for your pension. The FTSE 100 passing 8,000 might be a moment in history, but it should make not one iota of difference to your retirement investment strategy.

As your pension pot is being invested for the long term, it makes sense to set your strategy up for the long term as well. This should be based on sound investing principles such as:

– Only take investment risks you are comfortable with;

– Understand that the value of your fund could go down as well as up, especially in the short-term;

– Make sure your investments are diversified, so all your eggs are not in one basket;

– Keep your costs and charges as low as possible.

Attempting to time markets is a high-risk investment strategy that can go wrong. Take the FTSE 100, which has been driven higher by oil and gas stocks (which have been boosted by rising prices) and financial firms (which have benefited from rising interest rates).

Just because those companies have risen so far in 2023, does not mean they will continue to do so.

Drip feeding your investments and having a steady strategy, rather than reacting to events, is a simpler way to invest for retirement and helps smooth out this timing risk.

If you want a fund that follows the performance of the FTSE 100, there are low-cost tracker products known as exchange traded funds that can do that. But whatever decision you take, make sure you understand your investments and are focused on generating long-term returns.

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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