Meanwhile
As retirees chased a soaring Kospi, many who switched pension plans suffered losses, underscoring the risks of abandoning investment discipline.
Min Ju-young
The author is an executive director of the Pension Business Division at Shinyoung Securities and Ph.D. in business administration (pension finance).
When the Kospi reached 9,000 in May, a familiar phrase resurfaced in brokerage reports and financial headlines: “new normal.” The argument was that markets had entered a new era and could no longer be judged by old standards. For pension investors this year, few expressions have proved more costly.
According to Financial Supervisory Service data submitted for a recent parliamentary audit, nearly 150,000 retirement pension subscribers switched from defined benefit plans to defined contribution plans in June and July, hoping to manage their retirement savings themselves. After stocks reversed course in late June, returns for those who switched between April and June fell as low as minus 10 percent in July and August. They had entered the market near its peak.
History offers familiar warnings. In autumn 1929, American economist Irving Fisher declared that stock prices appeared to have reached a permanently high plateau, citing technological innovation and productivity gains. Within days, the market crashed, helping plunge America into the Great Depression.
During the dot-com bubble in 2000, the “new economy” supposedly rendered traditional valuation methods obsolete. The internet transformed society, but the Nasdaq subsequently plunged approximately 78 percent from its peak.
Investment strategist Ken Fisher observed that there is nothing new about the “new normal.” It is an idea that resurfaces with every economic cycle.
Technology advances and companies grow stronger. But neither development guarantees endlessly rising share prices or justifies abandoning investment principles.
Legendary investor Sir John Templeton warned that the four most expensive words in investing are “This time it’s different.” His message was not to deny change but to resist discarding principles tested over generations.
History repeats itself because human behavior remains remarkably consistent. Financial markets have become more sophisticated, but greed and fear endure. Rising prices encourage investors to seek reasons for further gains and fear missing out. Falling prices provoke fears of endless losses. These impulses perpetuate bubbles and crashes.
Pension investors must be particularly cautious. Retirement savings should follow investment horizons, risk tolerance and asset allocation principles, not passing fashions.
How can investors resist the temptation of a “new normal”? First, examine whether similar claims accompanied previous market booms. Second, distinguish the genuine value of emerging technologies from expectations already reflected in stock prices. Third, never allow optimistic forecasts to override established investment discipline.
The world constantly changes. The danger lies not in the phrase “new normal” itself, but in our persistent desire to believe that this time really is different.