As an extension to the Brexit deal looks to be on the cards, we revisit what this means for investors. Should you delay making further investments at this juncture, or even switch to cash, before there is more clarity on the way forward?
The answers to the above, as spelled out in our previous Brexit article and depending on your individual circumstances, are still probably no. Most of the arguments we put forward back then still apply but with the following additional comments.
Firstly, investors are inevitably affected by sentiment and uncertainty. Uncertainty is a fact of life in the investment world – however it should not be used as an excuse to put off investing. You should not let your investment decisions be driven by your emotions – instead, you should always look beyond the latest headlines and political noise as there will always be investment opportunities.
For example, we have seen investors pulling out of UK equities in their droves, as they become the most unloved sector in world markets. Because of this, many commentators and fund managers recognise that UK equities are now undervalued, meaning opportunities abound.
Further, if you look behind all the politics and Brexit noise, you will find that the UK economy is actually in pretty good shape. Most predictions suggested the economy would get worse after the Brexit vote, but in fact it has produced some impressive numbers. Latest government figures show that wages are growing at an annual rate of 2.7% above inflation, the fastest we’ve since before the financial crisis.
The employment rate has also hit 76.1%, the highest level on record, which has helped income tax receipts increase for the seventh year in a row. The chancellor in his Spring Statement also described the economy as remarkably robust and added that it has ‘defied expectations’ despite Brexit.
Despite their current unpopularity, UK equities have actually seen a good growth in returns since the original Brexit vote back in June 2016. The FTSE All-Share Index has returned approximately 20% since the EU referendum in June 2016 and the FTSE100 is up over 10% since the turn of the year.
So much for the UK but as an investor, you should be looking to hold a diversified portfolio. And whilst Brexit is affecting the UK, and to a lesser extent Europe, its impact on US and Asian markets is likely to be relatively minor. This means there will continue to be a number of interesting opportunities across different global sectors.
As for cash, with the current uncertainties, it can make sense for some to increase their cash holdings. However, whilst cash always has a role to play in a balanced portfolio, switching to cash big time has serious downsides for long-term investors. Investing is a long-term game and history has shown that equities have produced far superior returns over long periods of time.
Going forward, in terms of news coverage, it looks as though we will find it hard to escape from Brexit for the foreseeable future. However, as an investor, you should not let Brexit unduly affect your long-term investment plans. Of course, it could be a good time to review your investments, both to evaluate whether you need to rectify too much of a ‘home bias’ and to ensure your portfolio is still on track to meet your long-term needs.
In an uncertain and constantly changing world, guidance on the right investment strategy for you can be essential, even for experienced investors in the current climate. So for some sound financial advice, contact Kellands Hale today.
The information in this article should not be regarded as personal financial advice and is based on our understanding of the situation at this date. Remember that investments can go up and down in value, so you could get back less than you put in.