What would 'Brexit' mean for your investments?

With an increased focus on the implications of a British exit from Europe - known as ‘Brexit’ - investment clients will naturally be monitoring the impact on financial markets.

We have put together a few recommendations ahead of the referendum on June 23^rd to help guide you in the right direction.

Take a careful view on analysis and predictions

You are likely to hear all sorts of analysis, predictions and arguments about the upcoming results of the UK’s EU referendum and the potential implications of a Brexit for the economy. 

Whatever the individual commentator’s pre-set beliefs, they will likely be able to attribute their findings to some sort of ‘evidence’ to support their view. But the reality is simply that nobody can know either the result or how each scenario would play out.

Long-term, both the costs and the potential benefits of Brexit to the UK economy are probably exaggerated by commentators and campaigners from each side of the argument.

Beware of 'noisy' commentary

Nobody can predict the outcome of the upcoming referendum, so you must be aware of any ‘noisy’ commentary.

Even if Brexit occurs, its not clear that there will be significant, permanent investment implications, so it’s important that investors maintain their current view on the UK, based on current economic fundamentals.

Don't panic 

Over the long-term, investors do experience market falls which happen periodically. Generally, the wrong thing to do when markets fall by a reasonable margin is to panic and sell out of the market. 

This just means you have taken the loss. 

Instead, it’s important to remember why you invested in the first place, and make sure that rationale hasn’t changed. 

The market implications of Brexit are difficult to gauge at this stage, and it’s also important to note that a vote for the UK to leave the EU would not be the end of the process, but the beginning of a new negotiation phase. This is likely to take at least a couple of years and during this period, existing EU laws and regulations would continue to apply to the UK.

Don't let emotions cloud your judgement 

Brexit is understandably an emotive subject and one that you rarely hear analysed in a dispassionate way. 

There will inevitably be times of market volatility – especially since market falls are a natural feature of stock market investment. 

During these times, it is possible that emotions overcome sound investment decisions. 

The important thing to remember is to resist the temptation to change your portfolio in response to short-term market movement.

‘Timing’ the markets seldom works in practice and can make it too easy to miss out on any gains. 

Always remember: the golden rule to investment is allowing your investments sufficient time to achieve their potential. Warren Buffett, the American investor and philanthropist, puts it very succinctly: “Our favourite holding period is forever.” 

Understandably, market volatility can be unnerving for investors, but having a global strategy and broad diversification of assets should help to smooth out some of the inevitable ups and downs involved in stock market investing.

Independent Financial Advice