Last month, the UK chose to bring its 43-year membership of the European Union to an end. It’s undoubtedly a significant decision, with ramifications for the UK, the EU and the wider world, including British expats.
Whilst the referendum has supplied the answer to that first question of whether the UK remains in the EU, it’s raised a series of new questions in its place. Some of these will take months – perhaps even years – to answer.
Some initial adverse market reaction was to be expected, and the immediate response to the vote is likely to be the most extreme, until details emerge about what the next steps will be. In fact, once the initial shock has been absorbed by markets, there are reasons to believe markets may become more settled, not least because the main uncertainty has now been removed.
In an environment of doubt, it’s crucial that investors keep short-term volatility in context and avoid the temptation to allow such fluctuations to influence long-term plans. Looking through the short-term noise in markets isn’t always easy, but it’s the right course for investors who know that they need to remember the long-term record of real assets in providing capital growth and income.
5 things investors should remind themselves of:
- Indiscriminate market falls ignore the qualities of individual companies and provide opportunities for long-term investors to benefit by taking advantage of cheaper prices.
- Inevitably, some companies will struggle in the difficult economic environment that may result, or will be unable to adapt to the new world. In contrast, strong management teams will take the necessary and potentially difficult steps to make the changes that will benefit their company – and its shareholders – over the longer term. Seek the advice of expert and active fund managers to identify those companies and buying opportunities.
- Sharp market falls are always unsettling, but it is important to remember how stockmarkets have behaved in the past after such shocks. In October 2008, on the worst day of the financial crisis, the FTSE All-Share index lost 8.3%, yet one year later it had returned 26%. Looking longer term, after a one-day fall of 5% in February 2009, the FTSE All-Share returned 126% over the following five years. (Source: Schroders/Financial Express, June 2016. Please be aware that past performance is not indicative of future performance.)
- Although there may be a temptation to seek the perceived safety of cash, the dilemma for investors is then the difficulty of timing a move back into the markets. It’s already been suggested by the Bank of England that a vote to leave may even prompt a further cut in interest rates. Whether or not that happens, it does seem likely that returns on cash will remain at very low levels for some years to come.
- These events underline once again the value and importance of creating and maintaining a balanced and well-diversified portfolio, which should help cushion investors against the worst effect of short-term market fluctuations. The value of investing in global assets has already been demonstrated, as the drop in sterling will help cushion the impact of falls in the value of international holdings.
The referendum result may yet alter a great deal about the United Kingdom, but it does not alter the principles of investing or the need for individuals to take action to ensure their long-term financial security.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.
It’s always recommended you seek advice when it comes to financial planning. Should you wish to discuss any of the above information please do not hesitate to contact St. James’s Place at firstname.lastname@example.org.