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How to prepare your portfolio for Brexit

26 July 2018

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

On 29 March 2019, Britain is set to leave the European Union and head into the unknown. Although many in the media will make bold statements about what will happen, the reality is that nobody really knows.

For example, there were doom and gloom predictions after the referendum which so far, have largely been wrong. Since the day of the Brexit vote (up to 20 July 2018), the UK stock market has risen nearly 23%. This doesn’t mean it will continue to rise though, and past performance isn‘t a guide to future returns.

Of course, there’ll be lots of twists and turns as an investor, and factors out of your hands. But we think it’s essential to cut out the noise and instead focus on what you can control. This will give you the best opportunity to grow your money for the future.

If you’re looking for some simple ways to get your portfolio ready for March 2019, here are some essential tips from our experts. Please remember that all investments rise as well as fall in value, so even if you follow all our tips, you could get back less than you invest.

7 Brexit tips guide

1. Diversify

Diversification is one of the most important aspects of good risk management. We’ve all heard the saying ‘don’t keep all your eggs in one basket’. It applies to your investments too.

By spreading your money across different areas you can make a portfolio that’s less likely to see big swings in value than a more concentrated one. The hope is that when one part of your portfolio performs poorly, another part should pick up the slack to help smooth out returns.

2. Rebalance

Investors often start their portfolios with an asset allocation (mix of shares and bonds) to match their attitude to risk.

The problem is that we often set up our portfolio and forget to review it. But as we all know, markets move every day and this can completely change what your portfolio ends up looking like.

We’ve given an example below showing the effect of market movements on a £40,000 portfolio, spread equally across a few funds, five years ago. Fund A, B and C have risen 60%, 40%, and 20% while Fund D has fallen 10%.

Example £40,000 portfolio:

Fund A Fund B Fund C Fund D Total portfolio value
Original value (% of portfolio) £10,000 (25%) £10,000 (25%) £10,000 (25%) £10,000 (25%) £40.000
Value five years later (% of portfolio) £16,000 (31%) £14,000 (27%) £12,000 (24%) £9,000 (18%) £51,000

An investment in Fund A would have increased from 25% to over 31% of the portfolio in five years. In contrast, the same amount invested in Fund D would have fallen from 25% to 18%.

An investor in this portfolio would need to rebalance to get back to the original weightings. This would mean selling the areas that have performed well and reinvesting into those that have done less well. It can help you get back to the risk levels you’re happy with.

By not rebalancing your portfolio at least once a year, you’re likely to be exposing yourself to extra risk. And with Brexit just around the corner, it might be a good time to check up on your investments, and rebalance as necessary.

7 Brexit tips guide

3. Keep a little cash on hand

Experienced investors know there’s no need to always be fully invested.

That’s because keeping some cash in your portfolio means you can take advantage of any opportunities that come up. And with the potential volatility of Brexit, it’s possible that we’ll see some short-term falls in the market, which could bring opportunities to add to your favourite holdings at lower prices.

History shows you that by buying after markets have dipped, you get the best chance of achieving good long-term returns. Although unlike cash, investments can continue to fall, so you could get back less than you put in.

So after making sure you’ve got enough money in case of emergencies, we think it’s sensible to keep around 5% of your portfolio in cash so you can react quickly to opportunities.

If you are unsure of the suitability of an investment for your circumstances, please seek advice.

Discover four more Brexit portfolio tips

Including a common reason why your investments could be facing unnecessary risk.

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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

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