Media and political scaremongering around the vote to ‘leave’ or ‘remain’ and predictions of potential market falls are rife, but it’s important to ignore the media hype and not to be tempted to make knee-jerk adjustments to your investments. It’s an anxious time of course, but focusing on the short term impact and making panic-driven decisions isn’t wise. It is instead much smarter to focus on the long game.
I believe most non-advised investors do not understand the consequences of their investment decisions and are therefore much more likely to bail out when markets (and their portfolios) are falling. The advised client, who is likely to have a greater awareness of how their portfolio could perform in such circumstances, is far more likely to panic less, stay the course and achieve a positive outcome.
We simply cannot second guess the market and smart investors will ignore the current headlines and resist the temptation to react to bad market news. For instance, by the time you’re even aware of good or bad news, the rest of the market already knows and has included the impact into existing prices. It is the ‘unexpected’ news that alters future pricing and by definition the unexpected is absolutely impossible to predict. Also, any buy or sell trades, whether they work or not, ultimately cost money.
Many investment houses will be making tactical changes to portfolios by increasing their client’s allocation to cash but this flight to safety in itself creates the issue of when to get back in, with the likelihood of missing any potential upside if we vote to remain.
Our financial confidence as a nation is wavering following sensationalised news headlines reporting steep market declines in the event of Brexit; and it’s important to put this into perspective. The key investment fundamentals around all of this is to ‘super’ diversify globally to dampen market risks with an allocation to both risk and defensive assets and to hold tight. It is essential that when investment decisions are made due consideration is given to the following:
The level of risk that can be realistically and emotionally tolerated.
The investment returns that are required, and
The financial ability to absorb falls when they occur.
I mentioned before about playing the long game and ‘time horizon’ is a key factor here as the longer the investment term (minimum 5 years as a guide) there is greater probability of riding out the ups and downs of the markets and achieving a positive return and successful investment outcome. So whether we leave or remain, if we fast forward 5 years, it’s more likely those investors who have held their nerve and withstood this current turbulence, will come through it with a positive outcome.
I therefore believe the best course of action we can take right now is to embrace the turbulence we are currently experiencing. Market falls illustrate just what risk feels like when it happens and it can be very bumpy and not much fun. However, if these sorts of risks never occurred, the market would not be expected to deliver long term premium returns to those who are willing to ride out the pain.
So ignore the scaremongers, sit tight and don’t let the gloom and doom news drag you down or cause you to make potentially damaging financial choices. Instead, stay invested and focus on the things that you can control and that really matter to you in order to achieve your longer range plans.