BREXIT - Investing in Uncertain Times...

Following the rejection of the Government’s proposed EU withdrawal agreement on 15th January, there remains the possibility of the UK leaving the EU without a deal.

Following the rejection of the Government’s proposed EU withdrawal agreement on 15th January, there remains the possibility of the UK leaving the EU without a deal. The prospect of no deal does create significant uncertainty regarding the future impact on the UK economy. This may prompt questions about either your existing investments or new investments that you are considering making.

OBJECTIVES AND SUITABILITY

Firstly, Brexit should not really change anything with regard to your overall objectives and the suitability of investments to meet those objectives. Individuals prepared to invest for the longer term should not be concerned about short-term fluctuations in their investment values. Asset allocation models are constructed to predict a range of potential investment outcomes. However, these should remain suitable for longer term investment and there is no reason to automatically assume that any short-term market disruption caused by a hard Brexit will result in long-term results significantly outside of the range of given potential outcomes. A diversified approach to investment is key and there is no guarantee of a single asset class that will be superior to others in protecting against Brexit uncertainty.

DISINVESTMENT & DELAYING INVESTMENT DECISIONS

The simple guidance here is to not try and time the markets. The problem is always going to be deciding when to enter back into the market and there is a real risk of missing out on significant investment growth by doing so. Studies have shown that over the past 20 years around 50% of all of the investment growth in the FTSE All-Share has come from just the 10 best trading days. Disinvestment or delaying investment decisions carries the risk of missing out on one of those best trading days, setting back potential long-term investment growth. Even if there is some market downturn or volatility following a no deal Brexit, there will always be the possibility of future agreements and trade deals being reached, either with the EU or with non-EU states. Any such agreements may well have a positive impact for investments which will be missed opportunities for those not in the market. Furthermore, if you are considering disinvesting or holding cash or cash equivalents, consideration needs to be given as to what the short to medium term impact of this might be. A sudden no-deal exit from the EU may well prompt a further devaluation of Sterling. For individuals planning to sell holdings in the near future in order to meet a planned expenditure event e.g., annuity purchase, property purchase, school fees etc., there are considerations around whether to bring forward a disinvestment decision in view of this uncertainty. For imminent expenditure plans there is no right or wrong answer, but the decision will come down to your attitude to giving up an element of potential investment return. For expenditure plans that are slightly further into the future the considerations around trying to time the markets will start to come into play.

PHASED INVESTING

There are pros and cons to adopting a phased investment approach to new investments. Phasing will offer some protection against immediate falls in value. However, if you have a long-term investment horizon and sufficient risk profile then such protection should not really be necessary. If phasing is used, it needs to be over a short-term timeframe and ideally as part of an agreed automatic series of investments at defined intervals. Outside of these parameters, there is a real risk that market growth will be missed or that future investment will be overlooked completely with your funds remaining in cash indefinitely.

RISK PROFILE

It is possible that Brexit uncertainty will impact on your attitude to risk and the amount of investment risk that you are prepared to accept. The above points regarding not timing the market and the importance of asset allocation for long-term investment should form part of any risk profile discussion with your adviser. However, it is understandable that you may wish to change your view of investment risk as a result of the current political and economic landscape. In these circumstances, you should ask your adviser to revisit your risk profile before switching your investment strategy.

DEFINED BENEFIT TRANSFERS

The question about whether a proposed defined benefit transfer should still proceed largely depends on your overall retirement objectives. Economic or stock market conditions should never be the primary driver of a
transfer decision. Anyone significantly concerned about the impact of investment performance on their pension fund should probably not be making a decision to transfer regardless of Brexit. Delaying a transfer will have an unknown impact on future transfer values which may also impact on your retirement objectives. Assuming that the primary drivers of the proposed transfer are non-investment related (e.g. need for capital but not income or legacy planning) then these drivers are likely to apply regardless of the immediate economic outlook. It goes without saying that transfer decisions should never be made lightly, but Brexit uncertainly is unlikely to come into play when there is a good reason to consider a transfer.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

This document has been brought to you by your financial adviser who is a member of Tenet. For more details about Tenet and the support and backing we provide to our appointed representative financial advisers, please visit www.tenetgroup.co.uk/consumer. If you require any assistance or need financial advice, please contact Lottie Kent, at True Financial Design Ltd – 01423 297077.