Putting all of your pension eggs in one basket

Diversification is an important part of investment success. Not putting all of your investment eggs in one basket is equally as relevant when looking at your pension fund.

It appears that nobody told the Church of England about this.

A report from consultant John Ralfe found that the Church of England pension scheme invested all of their assets in company shares (equities).

At face value this might look like a reasonable long term strategy. Equities are likely to deliver the best results of any investment asset class long term.

Short term, it can all turn into a bit of a nightmare.

By the end of last year the Church of England pension scheme had assets of £500m but a deficit of £360m.

In common with many other defined benefit (final salary) pension schemes, they will now have to face up to some very tough choices. The foolish investment strategy could result in them having to reduce benefits for members or increase the retirement age. It will almost certainly mean having to increase funding for the pension scheme.

The simple lesson? Diversification is good. Investing in a single asset class is (very) risky.