By Neil Lindsay, Head of Paraplanning
With so many Brexit questions unanswered, financial advisers the length and breadth of the United Kingdom are being asked the same question by anxious investors, ‘What should I do?’ This is a difficult question to answer with so many potential outcomes. Perhaps turning the question around will provide easier answers – ‘What should I NOT do?’
Some of the messages we are giving to our clients are:
• DON’T PANIC SELL – it is impossible to time the market exactly. This was shown when, contrary to the predictions of doom-saying commentators, markets surged shortly after the UK voted to leave the EU in June 2016.
• DON’T PUT ALL YOUR EGGS IN ONE BASKET– it could be tempting to move your investments into the ‘flavour of the month’. However, strong past performance in an asset class can be a precursor to a sharp correction. You do not want to be a victim of bad timing.
• DON’T GO PASSIVE – passively managed funds may appear a good choice, with lower charges and focus on larger companies. However, when markets fall, passive funds track the market and fall with them. The value of a good active fund manager is clever tactical decisions, with an aim of achieving out performance in both rising AND falling markets.
We believe in investing our clients in globally diversified portfolios across a range of sectors and asset classes. The importance of diversification is that it helps protect portfolios from the economic or political risks of any individual country. Diversification should also reduce much of the volatility, and smooth out short-term market fluctuations, that may result from Brexit. We have found that a diligent selection process of actively managed funds achieves outstanding long-term results whatever is happening in the wider world.
So to answer the original question, if you are invested in the type of portfolio I have described, what you SHOULD do is hold your nerve in the short-term and you will reap the rewards in time. In times of uncertainty you should remember to never abandon the most important principle of investing – think long-term.
Neil Lindsay - Head of Paraplanning
These opinions expressed above represent our thoughts on the market and not intended as advice to any one individual. Mearns & Company is authorised and regulated by the Financial Conduct Authority