Keep calm and carry on: 6 tips for investing through Brexit
With the UK’s date of departure from the EU still undecided, Senior Adviser Richard Rochford covers some important lessons for savers amid market uncertainty.
For the past three years, UK investors’ nerves have been continuously rattled by Brexit, from the fateful referendum itself to the various twists and turns that have followed (not least the two changes in Prime Minister!).
At the time of writing, it appears that the UK will not leave the EU as scheduled on 31st October. However, this particular delay is actually good news – as a deal has (finally) won a vote in the Commons, and the EU has agreed ‘in principle’ to extend until 31st January 2020 while parliament examines the legislation – it does mean the lack of clarity is likely to cause market volatility for some time to come.
Financial markets don’t take kindly to uncertainty, and it’s easy to let emotions cloud your judgement and make hasty, knee-jerk decisions. However, when it comes to investing for your future, you stand a better chance of reaching your long-term financial goals if you put aside short-term concerns and remain focused on the things you can control.
Here are six principles that will help you keep perspective:
- Look long-term
Recent UK politics has undoubtedly been a rollercoaster ride, with sterling and the FSTE 100 feeling the ripple effects (or tidal waves) of the June 2016 referendum. But if history has taught us anything, it’s that markets often recover from shocks quite quickly.
So, unless you’re nearing retirement, it’s prudent to take a long-term approach – ignoring any short-term nerves and turning your back on day-to-day ups and downs of the markets. Even recent statistics show that, despite the uncertain outlook, the UK stock market has generally remained resilient, therefore jumping ship on your investments could mean you miss out on any potential recovery.
- It’s not all about Brexit
This might be hard to believe given the seemingly constant back-and-forths over the last three years, but Brexit isn’t the only factor that is currently dictating stock market performance. There are many factors that could affect returns, for example the US-China trade war and concerns over the slowing global economy. It is true that ‘the only certainty is uncertainty’, which is another reason why it’s sensible to commit to a long-term approach. For current global updates, read our WeeklyWatch news bulletin.
- Invest on a regular basis
One way to reduce the worry of investing at the ‘wrong time’ is to drip-feed your money into the market over time. This strategy reduces the potential of emotions overcoming logical decisions, and means that you won’t be at the mercy of short-term political movements.
The biggest benefit of drip-feed investing is something known as ‘pound cost averaging’. The idea is that by making small regular payments, you can smooth out the highs and lows of the market, buying fewer shares when prices are high and more when prices are low. A company pension scheme is one such example of drip-feed investing.
- Diversify your investments
A brilliant way of sheltering your investments from any market turbulence created by Brexit (or other events) is by taking diversified approach by investing in lots of different companies, asset classes and geographical areas, i.e. not putting all of your eggs in one basket! The theory is that, while all your investments may not go up at the same time, they won’t all go down together either.
Companies solely focused on ‘home soil’ in the UK and EU should ideally only make up a proportion of a well-diversified portfolio. If you’re concerned about your portfolio being over-concentrated, you may wish to consider taking a more global approach – your financial adviser can help you modify your portfolio accordingly.
As Rob Gardner, Director of Investment Management at St. James’s Place, says:
“Whatever your personal view on Brexit and how it will turn out, there’s no need for your investments to be reliant on any one particular outcome. Investors with a spread of diversified assets can shelter themselves from Brexit uncertainties – and sleep easier at night.”
- Take extra care when drawing an income
If you’re looking to draw capital from investments to supplement your income needs, your funds can erode more rapidly if the market is falling. It’s therefore a good idea to have a cash ‘buffer’ to provide extra income and help you avoid the need to sell investments when prices are down. If you’re eligible to start drawing it, your State Pension could also provide some income without the need to sell investments.
- Know the value of financial advice
An increasingly complex investment climate has made it challenging for investors who ‘go it alone’. That’s why many turn to professional financial advisers. After all, it’s our job to recommend a suitable investment portfolio and make sure that you are invested appropriately according to the risks you are happy with. Your adviser will also provide the emotional discipline required to ensure plans are acted upon, by providing guidance, reassurance, support and stability to help you stay on course to reach your financial goals.
Keep calm and carry on
As we have shown, when it comes to Brexit and other key political events, it is important to maintain a long-term view. Making a hasty decision based on day-to-day changes could mean you solidify any losses you’ve made, by not allowing the investment chance to recover. Your financial adviser can help you ensure you have a diversified portfolio, and can give you advice on when is best to ‘sit tight’ through periods of volatility.
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