Are you in a state of concern, thinking “What Will A No Deal Brexit Do To My Pension & Investments?”
Such is the fluid state of the Brexit negotiations the risk of me writing something only for it to be quickly out of date is high. However, because at the time of writing Theresa May has managed to get only a short extension to the Brexit date and due to EU intransigence, the risk of leaving without a deal is very high (currently 4/1 on one of the betting exchanges).
With that in mind, let me try to assuage some of your fears. But first, understand that this is in no-way a missive about what I think is going to happen with Brexit or the implications of various outcome scenarios because, like everyone else including Mrs May and Monsieur Barnier, I’ve absolutely no idea.
But let’s assume that we do leave the EU without a deal. There is a fairly high probability that Sterling will take a hammering and the UK stock markets will fall significantly. Remember that in the immediate aftermath of the original vote, the UK stock markets originally fell but they very quickly recovered, much to many economists’ and investment professionals’ surprise. The chart below shows the FTSE All Share for 2016 with the red circle being the time of the Referendum vote. A mere blip in the year, let alone a lifetime.
This time it may well be different. Part of the reason that share prices recovered was that UK exporters were more competitive with a lower value Sterling. However, with the risk of increased tariffs on imports and exports as well as supply issues, there is a very real risk that a correction is more pronounced and sustained.
This does not mean that it signals the need to make short-term reactive changes to your investment portfolios for a number of reasons:
Markets are forward-looking.
If betting exchange users are pricing in the probability of a No-deal Brexit the investment markets both domestically and globally certainly have done so too.
If you have invested your pension and investment appropriately they are globally diverse without an overweight UK position. This removes the idiosyncratic risk of being overexposed to a single economy for these very reasons. Globally, there may be a knock-on effect on international stock markets but with Trump’s bellicose attitude towards international trade and the prospect of slowing Chinese growth, there are much greater influences on the immediate term direction of global stock markets.
Who Knows What Tomorrow Will Bring?
The ‘experts’ have been wrong before and will be wrong again. Whether we leave with a deal, without a deal or don’t leave at all, is impossible to call and the possible outcomes on investment markets even more so.
But let’s assume that we leave without a deal and the global markets take it badly. It will be just another event in the history of the stock markets which they will recover from and continue their long-term upward trend.
There will always be noise surrounding global stock markets with lots of reasons why you should sell holdings and seek the sanctuary of low-risk assets. I wrote about this back in 2017 when many were predicting the end of the post-Great Financial Crash bull market.
The losers in the investing game are those who make emotional-led decisions and try to second guess the markets. The winners are those who ignore the noise and invest with patience and discipline. Have a look at my emoji guide to investing (click on the image for a larger version):
If you are wondering “What will a no deal Brexit do to my pension & investments?” and would like to discuss whether your pension and investment portfolios are appropriately invested please get in touch: www.neliganfinancial.co.uk/contact-us.