Pension and ETFs: does "nirvana" exist?

Introduction

In the midst of my career as an entrepreneur, I came across an article by JustETF (published on August 21, 2023) entitled: Retirement and ETFs: how they work.

I came across it for a very specific reason: to evaluate instruments to include in my assets (which I am building with a long-term perspective, together with my future spouse). However, that title immediately caught my attention, because behind it lies a question that sooner or later comes to everyone:

What if the public pension is not enough?

ETFs are often presented as the simple and powerful answer. I use them, I will use them again, and I think they are excellent instruments... but I don't want to paint a rosy picture: they are powerful precisely because they require method.

1. What is an ETF (explained without smoke and mirrors)

An ETF (Exchange Traded Fund) is a fund that generally follows a rule (an index) and is bought/sold on the stock exchange like a share.

In practice:

• instead of choosing one stock, you buy a basket;
• you can gain exposure to broad markets (global, US, Europe, emerging markets, bonds...) with a single instrument;
• costs are often lower than many traditional alternatives.

Key idea: an ETF is not a bet on a company, it is an efficient way to buy a piece of the market.

2. What JustETF stands for (in summary)

JustETF offers a very straightforward approach:

• build a supplementary pension by accumulating over time;
• use a PAC (periodic purchase plan) to make the investment more disciplined;
• focus on broad and diversified ETFs (typical example: global indices);
• remember that in the final phase (retirement), an exit strategy is needed, because liquidating everything at once can be inefficient and risky.

It then lists some classic advantages: diversification, low costs, buy & hold, cost averaging, real investments, security.

And here comes the interesting part: many of these things are true... but they need to be put into context.

3. Comments and analysis: it's not all gold, but it's very useful

3.1 Diversification: yes... but what kind?

ETF = diversification is only true if the ETF is truly broad and not concentrated.

• A global ETF tends to diversify better.
• A thematic/sector ETF can be highly concentrated (even if it contains many companies).
• Even some global indices can be unbalanced towards a few mega-companies.

Practical question: am I buying the market or am I buying a trend disguised as the market?

3.2 Low costs: yes... but they are not zero

ETFs have costs, even when they appear to be free:

• TER (annual management cost, already included in the price);
• spread (difference between purchase and sale price);
• broker commissions (depending on the platform);
• tracking difference (how much the ETF deviates from the index return).

Simply put: low costs help a lot in the long run, but they should be looked at carefully, not idealized.

3.3 Buy & Hold: great... if you don't confuse it with buy and disappear

Buy & Hold does not mean never looking. It means:

• no panic,
• no chasing trends,
• periodic rational review (once or twice a year is often enough).

The difficult part is not technical: it's emotional.
When the market falls, your instinct tells you to run. The plan tells you to breathe and follow the rules.

3.4 Cost-Average and PAC: very useful... but beware of PMC bias

PAC is a great behavioral aid: it reduces the risk of entering the market at the wrong time.

But there is a subtle psychological risk: fixating on the ACP (average cost price).

• Good: PAC smooths out prices over time.
• Dangerous: buying just to lower the ACP can become an obsession.

Anti-bias rule: I add because it is consistent with the plan and allocation, not to adjust a number.

3.5 Real investments: thank goodness (but let's remember what that means)

Yes: with an equity ETF, you have exposure to real companies that generate profits.
But this does not detract from an often-ignored truth:

you can have real investments and still lose money, especially in the short/medium term. Real does not mean guaranteed.

3.6 Security: a fundamental clarification (without slogans)

Many people read security and think capital protection. No.

The security we usually talk about concerns the structure (separation of fund assets, depositary, UCITS rules), not the market price.

So:

• yes, the structure is designed to protect investors from certain operational risks;
• no, no one guarantees that in 30 years' time the value will not have gone through difficult periods.

4. The part that is worth its weight in gold: the exit strategy

(exiting successfully is more difficult than entering)

If you invest for retirement but have no idea how to withdraw your money, you risk ruining everything just when things are looking up.

Three practical concepts:

1. Don't liquidate everything at once just because the time has come: you could be doing it at the worst possible time.
2. Gradual withdrawals: often more sensible and manageable.
3. Sequence of returns risk: if you start withdrawing during a negative market phase, the damage can be amplified.

Simple message: accumulation and decumulation are two different sports.

5. My three questions (which I really ask myself)

1. How well do I understand what I'm buying? (index, replication, costs, risk)
2. Am I acting according to plan or emotion? (fear, FOMO, pride, need to recover)
3. If tomorrow it's down 30%, what do I do? (and above all: what did I decide before it happened?)

Mini-checklist for retirement ETFs (practical, for beginners)

If you want to keep it simple:

• Broad ETF consistent with the objective
• Reasonable costs
• Sustainable PAC (an amount that doesn't cause you anxiety)
• written rule: when to buy, when to rebalance, what NOT to do in a panic
• exit strategy: gradual withdrawals, not everything at once

Conclusion

ETFs are not nirvana.
They are an excellent hammer: you can use it to build a house, or you can smash your finger with it.

What makes the difference is:

• the plan,
• discipline,
• and your ability to not be guided by bias.

Thank you for reading this far.

Essential glossary (anti-confusion)