Keep calm and spread your risk: managing your investments in the era of Brexit

Michelle Pearce-Burke
31 January 2019

The Brexit clock is firmly ticking. After almost two years since Article 50 was invoked, the 29 March deadline is just about all that can we can be certain of when it comes to Brexit.

With the government seemingly reaching a political impasse over the Irish backstop issue, a no-deal Brexit poses an ever-larger threat to Britain’s political and economic stability.

Should the UK government fail to reach a mutually-agreeable deal with the EU in time for a transition period to begin, either Brexit will happen regardless (so-called ‘no deal’), and the UK leaves the EU on 29 March; or the process is somehow lengthened or halted altogether, either through an extension of Article 50 – requiring unanimous agreement by all 27 EU member states – or by a swing in the balance of power in parliament and/or a second referendum.

Achieving a majority for one scenario seems like a tall order after the House of Commons rejected the deal the Prime Minister agreed with the EU by a massive 230 votes. Yet Theresa May has ruled out any delayed departure and refused to rule out a no-deal exit – perhaps her only remaining bargaining chip.

Meanwhile the government’s no-deal planning has generated headlines for the wrong reasons, exposing weaknesses in the UK’s contingency planning and casting doubt on the PM’s assertions that ‘no deal is better than a bad deal.’

The growing threat of a chaotic and sudden no-deal departure is fanning the flames of already fever-pitch levels of uncertainty among businesses and financial markets. In many businesses, planning and new investment is at a standstill.

“Panicking is the worst thing you can do”

Markets hate uncertainty. And investors have endured more than 12 months of edgy markets and below-trend growth. Any relative newcomers, having started their investing experience since the end of 2017 may understandably be reconsidering their decisions.

It’s clearly unsettling to watch the value of your investments fluctuate, but it’s important for investors to hold their nerve and think long-term. Panicking is the worst thing you can do. If you stay invested, your ‘losses’ are simple numbers on a screen – if you sell, you make them real. Only by holding on to investments will you give them time to potentially recover and even grow, over the longer term.

It may provide some reassurance to investors to know that, despite the ongoing media noise surrounding Brexit, we may have seen the worst of it from a market point of view. After the EU referendum in June 2016, the UK went from being the fastest growing G8 economy, to one of the slowest. The negative effect of Brexit on market and economic confidence was felt immediately and painfully.

The benefit of the seemingly unending commentary and debate around the process is that most probable scenarios are already factored in. To borrow a popular phrase from former US defence secretary, Donald Rumsfeld, save for a major curve-ball being thrown, in Brexit is a ‘known unknown’.

What investors should do about Brexit

It is a truth, universally acknowledged amongst investing professionals is that you shouldn’t rely too heavily on any one market or region for your returns. The period of persistently low market confidence and negative returns, such as we’ve seen since the referendum, is a stark reminder of this.

No one can be sure there’s not more pain to come for markets, but investors with a combination of long-term, well-diversified investments spread across global markets and asset classes, can take some reassurance in the fact they’re doing the best they can to mitigate Brexit uncertainty.

This isn’t the first time that markets have responded negatively to a major event. What we can learn from history is that save for war or major catastrophes, global markets have recovered from every major downturn since their inception, often significantly. In other words, this could simply be another storm to be ridden out. As any seasoned investor will tell you, it’s part and parcel of the process.

No one can predict what will happen after 29 March, but investors should take some comfort in the knowledge that the Brexit process is temporary and highly-focused on the UK & EU economies. Neither of these factors should significantly concern a well-diversified, global investment plan, regardless of the economic impact of Britain’s EU withdrawal.

Taking the long view, as all good investors should, there could even be a chance that Brexit in the medium to long-term may benefit both UK and EU economies, as pent-up demand in the markets unfurls once the exit plans become clear, and market values catch up with better performing indices.

So, just take a deep breath, stay calm and block Brexit out of your financial life.

Michelle Pearce-Burke is chief investment officer and co-founder of Wealthify