Investing In Uncertain Times
– Remember, it’s time in the markets, not timing the market, that counts.
It has been over four months since the UK’s Brexit referendum and we are still some way away from knowing when and how it will happen. This has left some expatriates feeling in limbo, which is affecting their investment decisions as they wait to see what happens instead of putting their capital to good use.
Waiting can be a risky approach for those with capital to invest. After the initial shock reaction, markets have so far proved quite resilient to Brexit. If you keep sitting on the sidelines, you risk of missing out on market rallies.
To protect your savings from inflation for your financial security through retirement, it is generally better to be invested for the long-term rather than wait for a ‘right time’ to invest or trying to time the markets. This does not change with Brexit.
Unpredictable events and investor sentiment can have an unexpected negative or positive impact on markets, and no-one can predict the future. To successfully time the markets you would need to accurately identify both the best time to buy and the best time to sell, and even experienced investors cannot get this right all the time.
Trying to time the market has plenty of risks – but the biggest one may be the risk of missing out. It is surprising what a difference missing the best days in a market cycle can make to investment returns.
To illustrate this point, a hypothetical £10,000 investment in the FTSE All-Share index for the 10 year period to 31 December 2015 would have earned a profit of £7,197 if invested the whole time. If the five best days were missed, the profit would be much lower at £1,831. If the 10 best days were missed there would be a £607 loss. Being out of the market on the 20 and 30 best days would have resulted in losses of £3,555 and £5,269 respectively. (Figures do not include fees or charges. Source: Russell Investments).
Successful investors are marathon runners, not sprinters. Staying invested in the markets over the long term usually gives the best results. It can be tempting to buy and sell assets based on market movements or uncertainty, but this will rarely help you meet your long-term financial goals.
Every market cycle has ups and downs, but short-term declines or uncertainty should not detract from the long-term potential of stock market investing.
If we look at the FTSE All-Share index over the 20 year period 1996 to 2015, although there were average intra-year declines of 15.7%, annual returns were positive for 15 out of the 20 years. A hypothetical lump sum investment of £100,000 at the start of 1996, with dividends reinvested, would have been worth £367,525 at the end of 2015 (Source: Russell Investments).
It is important though to ensure that your portfolio is built around your risk profile, and with strategic asset allocation and diversification to reduce risk and meet your objectives.
If Brexit is making you cautious, you could consider spreading the timing of your investment over a period, by investing in tranches. The ‘pound (or euro or dollar) cost averaging’ approach can help smooth out volatility and potentially improve average returns over longer time periods.
British expatriate investors are also concerned about the Sterling exchange rate. Note that you do not have to invest in euros, even if are investing in an EU investment arrangement; if your capital is in Sterling, you can invest in Sterling.
What you need is an investment structure that has a multi-currency facility. This would allow you, for example, to invest in Sterling now and then switch to Euros (if you wish) at a later date. It would also give you flexibility in how you take withdrawals.
This currency issue is important right now if you are to avoid exchange rate losses, so ensure you have suitable currency diversification and flexibility.
We believe the wisest investors are those who spend time up front to create a solid long-term strategy and then have the discipline to stay in the market, even if it feels uncomfortable. Statistically, they have the best chance of success. Take specialist advice to create a tailor-made investment strategy to meet your goals, based on your risk profile. Build up a good relationship with your financial adviser so they understand your needs and concerns and guide you through the Brexit years and into the future.
All advice received from any Blevins Franks firm is personalised and provided in writing; this article, however, should not be construed as providing any personalised investment advice. These views are put forward for consideration purposes only as the suitability of any investment is dependent on individual circumstances. The value of investments can fall as well as rise as can the income arising from them. Past performance should not be seen as an indication of future performance.