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The official Brexit deadline of the 31st January 2020 is looming, and many people are asking important questions about their investments. Will the UK economy or stock market be affected? If so, shouldn’t I adjust my portfolio and move my capital out of the UK until things stabilise?
Here at Suttons IFA, many of our clients in Sale, Manchester and across Cheshire have asked similar questions. We wanted to offer this guide to help, bringing clarity and peace of mind to some of these issues. We hope you find this content useful, and invite you to get in touch to book a free consultation (no-commitment) regarding your own financial plan. Reach us on:
T: 0161 969 1703
A lesson from 2016
When looking at these questions, it’s helpful to cast our minds back to the events surrounding the 23rd of June 2016 EU referendum. In the weeks leading up to the vote, there was a lot of market volatility. Indeed, at one point the FTSE 100 dropped from 6,300 to around 5,900 as opinion polls indicated a likely Leave victory.
The market had changed by the 20th of June, however. The polls were now less certain that Britain would vote to leave the EU, and the FTSE 100 climbed back up to 6,200. However, once the results of the vote emerged on the 24th of June, the markets fell again with the FTSE 100 going down to 6,000. Yet in the following days and weeks, the FTSE 100 was back up again and even surpassed the 6,300 high-point leading up to the referendum. At the time of writing over three years later, the index has continued to climb and now stands at 7,622.35
What’s the point here? It isn’t to say that history will necessarily repeat itself, or that indexes such as the FTSE 100 will not fall from February 2020. Rather, the point is that markets are notoriously difficult (if not impossible) to predict accurately. This makes it very foolish to try and “time the markets”, pulling money out before an anticipated fall. After all, those who abandoned the FTSE 100 during the low points of the 2016 EU referendum would likely now have lost out.
Try not to make impulsive decisions about your portfolio due to concerns about Brexit. Rather, discuss your worries with your financial adviser and stay in the markets; Successful investing is about ‘time in’ the markets and certainly not about ‘timing’ the markets.
Remember, investing is meant to be for the long term. Over the years, you should expect markets to rise and fall, but also anticipate your portfolio to grow overall. Stock market volatility and declines are always expected but they are temporary and the advance and trend upwards is always permanent.
You should be globally diversified already
A well-constructed investment portfolio should, already, not concentrate solely on one national economy or markets. Rather, there should be a healthy mix of global instruments appropriate to your financial goals, investment strategy and risk tolerance. The purpose of including such investments is not only to enable you to access important investment opportunities across the world (which may not be available in the UK). Doing so is also intended to help shield your portfolio against our-exposure to any single country, market or region in the event of an economic downturn in specific parts of the world.
From the outset, your financial adviser should have discussed this area of diversification with you, and recommended an appropriate set of investments for your portfolio. If you are concerned that your portfolio is too-highly exposed to a particular area, then get in touch with your financial adviser to voice your worries and discuss your options.
Remember the UK economy is strong
Whilst nobody can predict the future with certainty, it’s important to take stock of economic reality. Few economists are currently predicting disaster for the UK economy in 2020. Rather, the majority of experts seem to anticipate continued slow growth, with some predicting little economic change.
The threat of a no-deal Brexit, of course, still looms over the current December 2020 expiry date for the transition period, during which time the UK and EU are meant to establish a new trade deal. However, whilst widespread doubt exists regarding whether this timetable is realistic, the new political landscape in the House of Commons leads some commentators to expect the deadline could be extended to flesh out further negotiations and avoid economic disruption.
We will have to wait and see how events transpire. However, remember that even if the markets fall in 2020 due to Brexit, U.S-China trade wars or events in the natural environment, it’s vital not to panic or make rash decisions about your portfolio. Bear in mind that global markets have, overall, continued to rise over the past two decades despite numerous political and economic “disasters” (e.g. the 2008 Financial Crash). There are also often opportunities to be exploited during down markets, by remaining in the markets. Through pound-cost-averaging, for instance, an investor regularly commits capital to their portfolio; even during market fall, during which times he/she can buy more stocks for the same amount of money as before. When the market eventually comes back up and many of these stocks exceed their precious values, the investor is possibly better-off than they would have been had they stopped investing during the down market, or if they had tried to time it!
If you would like to discuss your own financial plan and investment strategy with our financial advisers here in Sale, then we’d be delighted to hear from you.
Please get in touch using the details below, to arrange a free, no-commitment financial consultation with a member of our team:
T: 0161 969 1703