Brexit, market volatility and your investments

Investing

MoneyPlus Features Team

13th December 2018 at 5:04pm

On 12 December, Prime Minister Theresa May faced a leadership challenge after many Conservative MPs declared they no longer had confidence in her to deliver a desirable Brexit outcome. Later that evening a secret ballot took place in the House of Commons resulting in the Prime Minister successfully securing her leadership position. The Prime Minister is now safe from further leadership challenges for a year and she has stated that she’ll continue to seek a Brexit deal.

What does this mean for markets?

Continued uncertainty around Brexit is just one of the factors likely to contribute to market volatility in the short to medium term. Other factors which are contributing to it are the prices of commodities, such as oil, weakness in some emerging market economies, concerns over the future strength of the Chinese economy, as well as issues in the US, including its trade war with China and rising interest rates.

However, the key is to keep calm and remember that volatility is a normal function of healthy markets.

Slow and steady wins the race?

Market volatility is unnerving and differing opinions on what the future holds only confuses matters more. But it’s important to remain calm and remember that volatility is part and parcel of investing over the long term. The moral of the tortoise and hare story is that you can be more successful by being slow and steady than quick and careless.

When it comes to investing, “slow and steady wins the race” is the name of the game. The longer you’re in it, the more likely you are to reap the rewards.

As you can see below, the past 33 years – which is as far back as the data for the main UK market index, the FTSE® All-Share Index, goes – have offered exceptional returns for many investors.

Source: Financial Express. FTSE® All-Share Index, total return with dividends reinvested, from 31 December 1985 to 11 December 2018. Figures don’t factor in any charges or the impact of inflation.  Figures refer to the past, and past performance is not a reliable guide to future performance.

But market volatility has undoubtedly caught out some investors over the years, causing them to panic and sell, losing money in the process.  Investors who have been able to stay the course and hold on to their investments patiently are likely to be reaping the rewards from the equity markets today and in the future.

Remember though, investment growth isn’t guaranteed – investments can fall in value too. And it’s possible that you could get back less than you paid in.

Try to control your emotions

It can be easy to panic when you see the value of your investments fall – it’s a very normal reaction. But keeping your emotions in check is really important.

If you give way to fear and sell, you’re likely to be selling after markets have already fallen and, importantly, before they rise again. That means you’re locking in losses and will potentially have less money than someone who kept their composure, and their money invested.

Trying to time the markets can be a dangerous game and catching the top and bottom end of things is extremely hard. So don’t try to time them – focus on what you can control. After all, if the market professionals didn’t spot falls coming, how could you?

Trying to time the markets can be a dangerous game.

Focus on what you can control

Periods of market volatility are a valuable reminder of the importance of diversifying – of spreading your money across different types of investments and geographical locations.

If you’re investing in only one or two of these then you’re exposing yourself to quite a degree of risk. But diversifying across investments and countries can help you get a much better balance between risk and return. Find out more about this in our article on the importance of diversification and correlation in investments.

Keep a close eye on your investments

Any important event, wherever it happens in the world, may have an effect on financial markets. That’s why it’s important to monitor your investments regularly and make changes as necessary.

If you don’t have the knowledge or time to review your investments, then think about delegating management to an expert.

And if you want to keep up-to-date with what’s happening in global markets, read the monthly market review by Andrew Milligan, Head of Global Strategy at Aberdeen Standard Investments.

 

With any investment, the value can go down as well as up and it may be worth less than was paid in. FTSE® All-Share All rights in the FTSE® All-Share Index vest in FTSE International Limited (“FTSE”). “FTSE” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence. The information in this article should not be regarded as financial advice and is based on our understanding in December 2018.