With so much noise surrounding Brexit, you may be wondering what impact it will have on your hard-earned cash. Whatever the size of your investment portfolio, and whatever your future plans, David Ryley, CEO of Nottingham-based Ryley Wealth Management, suggests that you don’t have to pay the penalty for living in uncertain times.
Even seasoned investors who have lived through world-changing political events in the past, might be forgiven for being more cautious with Brexit looming. After all, depending on what papers you read, it sometimes feels like we are stood on the edge of an economic precipice, with no clear way to grow – or even safeguard – shares, pensions and other investments.
Brexit, of course, has not yet happened but fears of a no-deal mean many firms have put contingency plans in place, with some increasing their spending to make sure they can continue to trade. The stock market, and businesses in general, depend on certainty, which has been in short supply lately.
However, despite the frenzy around what the outcome will be, it seems the economy is in good shape and there are promising signs of growth in most sectors. Corporate planning is on the rise, as more firms recognise the importance of having a clear strategy in place, while consumer spending[1] is also up, suggesting that people are simply bored of Brexit combined with an increase in wage inflation. As the UK’s planned exit date (31st October) edges closer, we need to avoid talking ourselves into a recession.
The good news, as far as investments are concerned, is that people still want their money to work hard for them, so it is generally a case of business as usual. Interestingly, we found the EU referendum in 2016 and the election of Donald Trump later that year, did not change people’s desire to invest. While it is certainly true that some are nervous of change, we should remember that momentous events happened over and over again during the last century, yet the markets bounced back.
While clients have asked us whether they should cash in their investments, or reduce the size of their portfolio, this is not always a good idea as they will lose the dividends and if there are any losses on the portfolio, these are then crystallised. Nevertheless, the majority are not asking us about risk – the press may be obsessed by Brexit but the general GDP data around the world remains relatively healthy. Taking advice to access the top investment managers is crucial to identify the best areas of growth but also to construct a balanced portfolio, in order to reduce risk. Concentrating on fundamentals rather than the noise created by the media is the best policy when investing.
For the relatively inexperienced investor, in order to get the most out of an investment, you need to ensure it has sufficient time in the market to encourage compound growth, rather than moving it around and trying to play the market. Events like Brexit should have little impact on your portfolio if you focus on increasing their value in the long-term. As any good financial planner will tell you, it’s a case of time in the market, not necessarily timing the market. Holding your nerve in the market and allowing the dividends to keep rolling in is generally the sensible and rational approach.
Those who are approaching (or who have already reached) retirement, on the other hand, are right to be more cautious about short-term economic risks.
But rather than panicking and selling all your shares at once when markets fall, another option is to diversify your portfolio at the outset by spreading investments across companies in different sectors and different asset classes. This allows you to mitigate your exposure to any one sector and means any volatility in markets will be diluted to a greater degree, than if you are overweight in any one area. Chasing growth that has already happened is also irrational but quite common behaviour with inexperienced investors. Diversification is an essential way of safeguarding your money against a downturn in some sectors and reducing any short-term fluctuations.
Everyone wants to get the most out of their investment, so it is important to check whether your returns are going to be eaten away by tax (known as ‘fiscal drag’). With the right legacy planning, you can avoid falling into the wealth trap and give your investment a better chance of continuing to rise as it is passed down the generations.
As a final point, it is worth mentioning that the UK remains an attractive place for investors, with London still renowned as one of the biggest financial centres.
Being based in Nottingham, I also see plenty of exciting growth opportunities across the East Midlands. This is partly down to its central location and excellent transport links, including East Midlands Airport, the M1 and A1 and proposed HS2 line. Working together, Nottinghamshire, Leicestershire and Derbyshire have the power to drive the Midlands Engine and ensure it rivals the Northern Powerhouse. This is a region where trade can thrive, and I am expecting to see a great deal of UK and overseas investment in the coming years.
