Five Lessons Learnt After Brexit

Tim Bennett's perspective in light of the 12 point plan

 

Theresa May’s latest speech outlined a 12 point plan for what looks increasingly set to be a “Hard” Brexit: a comprehensive withdrawal from the EU that will re-position the UK as fully independent in both economic and trading terms.

 

The markets have reacted short-term: at the time of writing, the FTSE 100 is down, whilst sterling has risen. In light of this, here are some pointers for anxious long-term investors:

  • Don’t be a short-term media junkie. Every twist and turn in the Brexit process will continue to make the front pages and we will now see much speculation about what a “hard Brexit” may mean. However, this shouldn’t distract you from your longer term investing goals and strategy
  • It’s not all about Brexit. While we and our European partners fret about the impact of the terms of our exit from the EU, other bigger forces will continue to shape the investing landscape such as the strength of the key US and Chinese economies. Closer to home, the size of our current account deficit and the outlook for inflation were causes for concern long before the EU vote and neither has been tempered by it
  • The past is no guarantee of the future. A few months ago we were thought to be bottom of the pile when it comes to striking a trade deal with other countries but just this week Donald Trump has hinted heavily that this may not be the case as far as the US is concerned
  • Expect the unexpected. A weak pound may be in effect a vote of no confidence in UK Plc from the foreign exchange markets yet, much to the surprise of the doomsters, the FTSE 100 has risen sharply since last June in part thanks to big firms that earn significant profits in the much stronger US dollar
  • Be wary of “experts”. Many top economists and analysts failed to predict how markets would react to both Brexit and a Donald Trump victory in 2016, having failed to foresee the scale and depth of the last financial crisis a decade ago. There is no obvious precedent for Britain’s exit from the EU so anyone who attempts to second guess the impact is doing just that – guessing.

What should I do?

  • Regularly monitor your asset allocations to ensure they match your objectives and risk appetite
  • Factor in the potential return of inflation when positioning your portfolio
  • Diversify internationally to reduce country and/or region-specific risks
  • Invest into long-term themes that are unlikely to fall victim to country-specific political risk
  • Don’t be swayed by short-term news headlines into either panic-selling or sitting on cash indefinitely
  • If you are nervous about investing into stock markets at all-time highs, consider a drip-feeding approach
  • Reinvest dividends to reduce overall portfolio volatility.