We recently received an email from a loyal reader here at Moneystepper, who introduced his summary of recent investing performance with the phrase: “Only time will tell what the Brexit truly means going forward…”
And, with the huge amount of uncertainty over what the Brexit vote in the EU referendum actually means, I would say he’s right.
However, in the shorter-term, are there any actions we should be taking to our investing strategy as a result. In today’s article we look at the opposing arguments.
Yes – The Weakness Of The Pound
The clearest and most immediate impact on the financial markets as a result of Brexit was that on the strength of the British currency. The day before Brexit (Thursday 23rd June), £1 was worth $1.4815. By the Monday following Brexit (Monday 27th June), this had tumbled to $1.3308.
This means that the Brexit result wiped over 15% off the value of the pound against the dollar. This is a huge shift that has only ever been seen a couple of times before in history. With such a big change, many would argue that you would be foolish as an investor just to ignore such large movements. Many investors, at very least, would realign their investment strategy to reflect the change in value of your base currency for investments.
Yes – Possibility to Profit
However, this change could also lead to more opportunity for larger profits in these volatile currency markets. For example, those who accurately predicted a Brexit result could have been 15% better off over night. On the other hand, those who thought that this was an over-reaction by the currency markets were proven correct in the week after, with the pound regaining around 4% of the value previously lost.
By keeping abreast of these changes, and by understanding the risk and potential reward with such volatility in the currency markets, a few well timed trades with Forex trading specialist could be extremely rewarding.
Yes – Uncertainty in UK Markets
The markets themselves have also reacted harshly to the Brexit result. This was mainly as a result of “uncertainty”. However, with the Leave campaigners clearly having no defined plan for exiting the EU (does anyone else think that they thought they had no chance of winning…), the uncertainty isn’t going away any time soon.
We’ve yet to see the numbers in the data for the wider economy (job creation, property prices, houses built, etc), but these will undoubtedly be effected one way or another as a result of Brexit. This leads to some decisions to be made over where your money is invested in the UK markets, but more pertinently, raises a question over the global diversification of your portfolio as a whole.
No – Think about the Long Term
However, not everyone will be rushing to make significant changes to their investments. One of the main reasons is the very principle of long-term passive investing is that these things will happen. There are periods which see large and prolonged growth in financial markets, and there are events that negatively impact them.
No – Stick to your Strategy
Brexit is just one of these events, and so passive investors will likely think to the long-term and not make any rash changes to their investment strategy.
If your strategy was good in the first place, you’ll already have built in to your investment a good level of diversification over asset classes, different industries, investments across a range of countries, and in different currencies.
So, if you already have the right strategy in place, Brexit won’t feel like such a big deal and we won’t need to take any drastic action.