Unsurprisingly a common question our clients ask during their annual reviews is ‘What effect will Brexit have on my investments and future plans?”
Areasonable question to ask and a difficult one to answer. We are not blessed with a crystal ball, or at least one that works.
The question of course will often really mean, ‘is there something ahead that may affect my investments in a manner that might cause me some financial difficulties?’ That again is a difficult question to answer but we understand the sentiment.
Investors want different degrees of certainty. Those who want absolute certainty shouldn’t invest in anything other than deposit accounts, although, if history repeats itself the buying power of money on deposit will diminish due to inflation.
Those who cannot afford to lose much money are likely to have more concern about stock market volatility than those who could afford to lose much more. This topic forms a big part of the financial planning work we do. Everyone is different.
But back to Brexit. Google the subject and you will find every view that you could imagine. On the whole the press seem to be rather negative about Brexit but negativity can be sensationalised and sells more newspapers.
The fund managers we speak to typically have a rather different view. Stock market prices are driven by current facts and future speculation. If future speculation (they call it ‘analysis’) predicts some bumpy times then the prices today will be depressed. Unsurprisingly, fund managers have modelled all manner of Brexit outcomes and will only buy investments when the price is right according to their future speculation. What this amounts to, is that much of the future concerns about Brexit are already priced in to the market. The key here is:a) When the referendum results came out the UK markets fell quite markedly for a period of time. The value of the pound also fell against other currencies which made international companies more valuable. Thus, diversified portfolios (strangely enough, like the ones that we manage) that have international exposure were remarkably resilient through this period. b) If your investments are blended to match your view of risk and you are investing for the longer term then weathering any storm has been proven to be the best strategy. Research regularly concludes that trying to time the market is rarely successful.
So there may be Brexit bumps, but I don’t think it will be Armageddon. We’ve no crystal ball but heed the above and we reckon things will be OK.