Financial Adviser Hastings

Preparing yourself financially for Brexit


There was plenty of doom and gloom guesses around the referendum which so far, have largely been wrong. Since Brexit day the UK stock market has risen almost 23%. Not many would have predicted that but as we all know this doesn’t mean it will continue to rise and past performance isn’t a guarantee to future returns.

So, what can you do to get yourself in financial control before March 2019.

Here we look at some tips from the experts. Please remember that all investments rise as well as fall in value, so even if you follow all our tips, you could get back less than you invest.

1. DIVERSIFY

Spreading your investments is good risk management. Having different and many varied investments can make a portfolio less risky and less likely to see those swings in value than a more centralised one. The hope is that when one part of your portfolio goes down, another part should pick up to help smooth out returns.

2. REVIEW REGULARLY

Investors often start their portfolios with an asset allocation, which is a mix of shares and bonds, to match their attitude to risk.  The problem with this is that we often set up our portfolio and forget about it. But as we all know, markets move every day and this can completely change what your portfolio ends up looking like.

Below is an example showing the effect of market movements on a £40,000 portfolio, spread equally across a 4 funds, 5 years ago. Fund 1, 2 and 3 have risen 60%, 40%, and 20% while Fund 4 has fallen 10%.

 

£40,000 Portfolio

Fund 1

Fund 2

Fund 3

Fund 4

Total Portfolio Value

Invested Value (% of portfolio)

£10,000

(25%)

£10,000

(25%)

£10,000

(25%)

£10,000

(25%)

£40,000

Value at 5 years (% f portfolio)

£16,000

(31%)

£14,000

(27%)

£12,000

(24%)

£9,000

(18%)

£51,000

An investor in this example portfolio would need to rebalance, depending on their overall strategy, to recreate the original 25% equal balances which can help you get back to the risk levels you’re happy with.

By not rebalancing your portfolio at least once a year, you’re likely to be exposing yourself to extra risk. And with Brexit just around the corner, it might be a good time to check up on your investments, and rebalance as necessary.

3. KEEP CASH ON HAND

Experience tells investors that you don’t have to always be fully invested.

This is because having cash in your portfolio allows you to take advantage of any opportunities as they arise. With the potential volatility of Brexit, it’s possible that there could be some short-term falls in the market, which could bring opportunities to add to your favourite holdings at lower prices. Historically buying after markets have dropped, gives the best chance of achieving good long-term returns.

After ensuring you’ve got enough money for emergencies, around 5% of your portfolio in cash is sensible, so you can react quickly to opportunities

If you are unsure of the suitability of an investment for your circumstances, please seek advice.

The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Levels, bases and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. Please contact us for further information or if you are in any doubt as to the suitability of an investment.

 

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