In or Out – that is the question

With the Brexit referendum less than a month away the country remains mired in claims and counterclaims over the costs and benefits of leaving the EU.

As Investors you will naturally be concerned about the impact on financial markets. In the next few weeks and months we could see a fair amount of uncertainty in both stock and currency markets…but what should you do?

We don’t believe that trying to guess the outcome of the referendum and altering your investment portfolio is a worthwhile exercise. As the result of the Scottish referendum showed, movements in currencies and shares are often fairly short-lived. Much is also included in share prices before the result of the vote is known too.

Remember that the nature of your Portfolio is long-term. Constantly making changes to take into account short-term events often proves to be counterproductive in the long-term. Better to construct a Portfolio scientifically (use of academic research), have a foot in most areas (diversify), keep your costs low (invest passively) and then remain disciplined.

You’ve hear it all before (and it ain’t necessarily sexy!) but history tells us that disciplined investing based on all the above factors gives you the best chance of having a successful investment experience!

I get all this but what could Brexit mean for my investments?

If there is one thing financial markets abhor, it is uncertainty. We saw significantly higher volatility in currency and stock markets as 2014’s Scottish referendum approached, followed by a relief rally when the ‘no’ vote became clear.

Longer-term, the impact on investments is less clear. Share prices are eventually dependent on corporate earnings, and in the event of a significant hit to GDP, this could have a knock on effect to stock markets. On the other hand, if Brexit proves positive for the economy, markets could rally.

Voters’ tendency to vote for the status quo in referendums and the betting markets suggest the chances of an ‘out’ vote are relatively small. However, it’s important to bear in mind that your Portfolio has a high degree of ‘global spread’ meaning that its future returns will be far more dependent upon the world’s economic growth rather than the short-term performance of the UK’s.