It’s (very nearly) time for the soapbox campaigning to stop, and the ballot box voting to begin. With the Brexit referendum on the 23rd, Britain’s membership of the EU hangs in the balance. The implications of either result could be profound, and as this once in a generation decision looms large, tensions are rising.
With poll predictions of the outcome swinging like a pendulum on a day-by-day basis, the result is still too close to call. For investors and those considering their pension options, the next few weeks could well hold much uncertainty and confusion. So we’re taking a look at the key financial issues you need to know about ahead of June 23rd.
If there’s one thing markets hate, it’s uncertainty. According to an International Monetary Fund report from May 13th, the Brexit vote could engender “a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output”.
With the precise effect of a potential Brexit on the UK economy (and, in turn, on investment portfolios) unclear, many investors are understandably concerned and unsure about what to do.
During periods of expected market volatility, portfolios featuring low risk assets can protect an investor’s capital. Whether the UK chooses to stay or go, these sturdier portfolio options are more likely to stand strong in the face of market uncertainty.
Among the plethora of economic warning signs, a study produced by The National Institute of Economic and Social Research has suggested leaving the EU could weaken the sterling by as much as 20%.
This would prove to be a double-edged sword for the UK economy. From one perspective, there are benefits to the falling value of the pound, which may make UK exports more competitive and that, in turn, could lead to economic growth.
However, imports would become more expensive, and this could trigger an increase in inflation and (subsequently) interest rates. Foreign investors may also be discouraged from moving capital into the UK. All of these eventualities, though, remain unknowns. There is only one certainty, and that is uncertainty.
From an investor’s viewpoint, portfolios with some form of global diversification should prove to be an attractive option. Steering clear of the potential instability around the sterling and seeking refuge in alternative currencies, such as the US dollar, has proven to be a safe bet previously in times of market volatility. However, it is important to remember that these portfolios must be built with the UK investor front of mind, and while global diversification is a shrewd move, they still need to lean towards sterling assets.
At this stage, the result of the EU referendum sits precariously on a knife edge. Whether the UK remains or leaves the European single market, the impact on the economy, investments and pensions is as yet very difficult to know.
That’s why a robust, well-diversified portfolio with lower risk assets, as well as equities, is probably the most sensible route to follow. Such an approach will protect against home currency fluctuations and also ensure the best chance of higher returns over the long term.
If you have an investment conundrum, or need help with your pensions options, then speak to our expert financial advisers today. Call us on 0333 241 9900 or click here to request a call back.