Ride out the post-Brexit roller coaster
What interesting times we live in now that the nation has voted to do a Brexit. We have witnessed political musical chairs played out in the corridors of Westminster – and Labour has yet to stop moving its furniture.
Nigel Farage, meanwhile, has gone off to drink copious amounts of good beer, while Boris Johnson has been asked to wave the flag for the UK on the global stage. You couldn’t make it up. It’s on a par with a political thriller by Michael Dobbs – maybe even better than House of Cards.
But the Brexit shenanigans have not been restricted to politics. Financial markets have wobbled, sterling has dropped like a stone (rallying occasionally) and there has been a cut in the base rate. A slowdown in the economy is almost assured, threatening jobs.
On the personal finance front, Brexit has delivered both opportunities and disappointments. Provided borrowers have hefty equity in their home or a big deposit to hand, they can now lock into some of the best fixed-rate mortgage deals that have ever been available – deals, fixed for five or even 10 years that will take borrowers through to the next election and beyond. That’s financial certainty guaranteed – something out of kilter with the uncertain times we live in. If you can, bag a deal.
In contrast, a weak pound has not helped those holidaying abroad, and it has stoked fears of a sharp rise in inflation, while there is no end in sight to the misery that deposit savers have endured since the 2008 financial crisis.
At best, savings rates will remain as moribund as they are now. At worst, they will continue to be given a wet shave by banks and building societies keen to keep the profits rolling in.
Shopping around for the ‘best’ interest rates has never been more important, especially if your money is sitting in an account earning pitiful interest of 0.1% or 0.05%.
As for anyone looking to secure a lifetime income through the purchase of a pension annuity, they face a big dilemma. Annuity rates have been given a near 17% haircut since June last year – and are plumbing new depths every week. Shopping around for the best deal can help, but for some it may make sense to bite their lip and wait for a bounce back in rates (which, admittedly, may not come quickly).
For investors, the UK stock market – and for that matter other markets around the globe – has resembled a roller coaster since the Brexit vote on 23 June.
In the immediate aftermath of the vote, the FTSE 100, an index reflecting the share price fortunes of the 100 biggest listed companies in the UK, plunged to below 6000. But it then recovered to reach a new 11-month high.
Of course, with economic slowdown inevitable, UK corporate profits will come under pressure, although many leading companies do generate big chunks of their revenues overseas, protecting them from economic fallout here.
Downward pressure on corporate earnings is normally not good news for investors. Yet such uncertainty – such negativity – should not put off equity investors looking to build long-term wealth through tax-efficient vehicles such as pensions and individual savings accounts (Isas).
My mantra at times like this is to bite the bullet, think long term and keep investing – preferably on a regular monthly basis, and through unit trusts and investment trusts that spread their holdings across companies, and often markets (thereby diversifying risk for investors). Provided you hold your nerve, such long-term investing should reward you.
Pulling up the drawbridge (suspending your monthly investments) until markets ‘stabilise’ simply does not make sense. Markets rarely do, and you will be lucky to call it correctly.
If you need a little help or reassurance, speak to an independent financial adviser. Their purpose in life is to ensure you have sufficient wealth put aside to give you financial security in retirement. Their services do not come free, but every penny will be well spent if they give you back your financial mojo.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.