Put spice in your pension without buying risky shares

Emerging market bonds deserve a look for investors wanting something that packs a punch without the level of risk associated with shares.

The investment dilemma

You've doubtless often heard the advice that as in the long term shares beat all other asset classes (such as cash, property, bonds) you should pack your pension full of them.

That’s all very well for ‘them’ to say, you retort, but for nearly fifteen years shares have gone nowhere. Yes, those investors who shrewdly jumped in and out of the market to capture the peaks and troughs did well, but that was another thing ‘they’ told us not to do – just buy and hold for the long term ‘they’ said.

If you have to retire in the next decade you simply cannot afford to see your pension savings ruined by another market crash.

More to the point, if shares perform for the next decade in the way they did in the last then they may not even keep pace with inflation. For anyone retiring in the next decade that is a real worry and no amount of being told to just suck it up and ‘buy shares’ is going to stop you worrying.

The problem is that the fear of market falls could cause investors to take too much risk out of their pensions too early.

Parking cash in the bank basically amounts to losing money because interest rates are so far below inflation now and those government bonds which are designed to track inflation are, most professionals agree, pretty expensive these days.

So are there any ways to keep the returns in your pension a bit spicy without taking the risk of packing it too full of shares?

Here is one tip

This is not intended as an alternative to owning shares in your pension, but as a way of keeping some of your pot invested in assets which should attract the sort of returns associated with taking some risk, but without running the full gauntlet of risks associated with shares.

Emerging market bonds

Emerging market bonds are in my view one of the least-owned but most interesting investments for private investors. They are in effect the debt issued by the governments of emerging countries and the companies based there.

This may sound a surprising thing to say as this area has generally been associated with high-risk investment over the years. After all sometimes emerging countries go bust and emerging market debt bubbles have been associated with recessions for centuries.