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What Brexit, Biden and vaccines mean for your money

We look at what Brexit, Biden and vaccines could mean for the stock market and investors.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

It's hard to believe the end of 2020 is around the corner. As the winter nights have drawn in, discussions on Brexit, Biden and vaccines are louder than ever.

With headlines like these, it's hard to know what to do and how to react. It's the same when making decisions with our investments.

Market ups and downs, and seeing your investments rise and fall in value can be worrying.

Nobody knows what will happen in the months ahead. But what we do know is not having all your eggs in one basket is now more important than ever. That means keeping your investments spread across a range of assets, sectors and regions. Diversification is one of the best ways to spread your risk and key to making sure you stay on track with your investing goals.

This article isn't personal advice, so if you're not sure if an investment is right for you, please ask for advice. All investments fall as well as rise in value, so you could get back less than you invest.

Brexit

Although the UK officially left the European Union on 31 January 2020, we're still in a transition period that lasts until 31 December 2020.

If we don't agree a deal by the end of the year, the UK will need to follow rules set by the World Trade Organisation (WTO) when trading with the EU.

No deal could mean tighter border checks and tariffs (taxes or charges from a government) applied to goods sent to the EU. All these changes could drive up the prices and that makes our exports less competitive.

If we do reach a deal before the deadline there'll still be changes, and certain goods can't cross the border without specific checks. UK businesses will need to prepare for this.

What will Brexit mean for investors?

If you can look past the short-term uncertainty, there could be some long-term opportunity.

Big UK companies do lots of business outside of the EU already. Around 70% of FTSE 100 revenues come from overseas.

Despite how big UK companies make their money, Brexit's been putting investors off the UK for a while now. It's meant some UK companies have become undervalued. In the long term, investing in shares with lower valuations has generally made investors more money, although remember this isn't guaranteed.

We don't know what will happen between now and 31 December 2020, so expect volatility over the short term. Share prices are likely to bounce around a lot.

However, we think owning some of the UK stock market could be a good idea in the long run.

If you're looking for ideas to get started, you might want to think about a fund managed by a professional. Our Wealth Shortlist is home to a range of funds investing in the UK that our experts think have the best performance potential.

See the Wealth Shortlist

A Joe Biden presidency

News surrounding the US election has had lots of us feeling like we're going around in circles. If Joe Biden has been announced as the next president-elect, why is there still any uncertainty?

The simple answer is the US political system works a lot differently from the one we have in the UK – none of this is anything unusual in America.

When Americans vote for the president, they're voting for a representative from the party called an elector. The elector will then vote for the president on behalf of the state they represent. This won't happen until 14 December.

Currently, it's likely Biden will be the 46th president to move into the White House. But the question of which party will control the Senate is still lingering and could have some pretty big implications.

If Democrats can have a majority in both the House and the Senate, it'll be easier for Biden to push through his agenda. Currently, this all hangs on the results in the state of Georgia.

Next steps in the US election – could stability be on the horizon?

What a Biden presidency could mean for investors

While not securing the Senate might make it difficult for the Democrats to get as much passed, this isn't always a negative for stock markets.

Chart showing stock market returns in different political scenarios since 1945

Past performance isn't a guide to the future. Source: CFRA Research.

Will Biden be better for stock markets?

It's important to not let the noise of US politics distract you from your long-term plan. Stick to your strategy.

As part of every long-term investment plan, you should make sure you bring your portfolio back in line with the percentages you were comfortable with when you started. Sell some of what's performed well and top up what hasn't, as long as your conviction hasn't changed.

If you're happy with your current portfolio, you don't have to do anything. And never make snap decisions based on short-term political shocks.

The Art of Rebalancing – here's why it matters to investors

Vaccine

Over the past few weeks, news of successful vaccines has brought some hope things will be able to get back to normal soon. It feels like our golden ticket out of the pandemic.

There have been a few announcements now, with one company's vaccine recently being approved for widespread use in the UK.

With headlines like these, it's easy to get swept up in all the excitement. Stock markets around the world have been enjoying the news too.

The British regulator, MHRA, has said the vaccine will be safe for rollout next week. However, that's not yet been the case for the US as the Food and Drug Administration (FDA) haven't approved any vaccines so far.

While news of a vaccine is undoubtedly great news all round, it's important to remember there are still key hurdles to clear.

We'll need to get it to millions of people in the middle of a pandemic. Some of the vaccines need to be stored at extremely cold temperatures too, adding to the challenge.

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What a vaccine could mean for investors?

For most of us, access to a vaccine is going to be out of our control. So use this time to make the most of what you can control.

Any future news on vaccines, good or bad, is likely to influence stock markets globally. At times like this it's good to go back to basics. Don't try to time the market for a quick win.

We think it's important to invest for the long term, regardless of short-term news events. Even if you invested in the FTSE All-Share the day before the 2008 financial crisis started, it would be worth over twice as much today. Remember that past performance is not a guide to the future.

Chart showing £10,000 invested the day before Lehman Brothers collapsed

Past performance isn't a guide to future returns. Source: *Lipper IM to 25/11/2020.

We think choosing a business for their long term potential will give your investments the best chance to grow.

Remember, long term isn't a few months, a year or even five. It's longer.

Compounding – your most powerful investing tool

Act consistently as an investor

Investing is about growing your wealth over the long-term, so don't try to venture a guess at how markets might react to blaring headlines.

Benjamin Graham once put it “The individual should act consistently as an investor and not as a speculator”.

Stick to your long-term plan. Being consistent will give you the best chance to weather any market storms, and stay on track to reach your investment goals.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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