And so were about to enter October a month thats seen more of the biggest stock market falls than any other since the 1980s. This year, for added fun, we have the culmination of Brexit. Yes, by hook or by crook, deal or no deal, Boris Johnson seems determined the UK will leave the European Union on Halloween.
Regardless of whether you agree with his strategy or not, its clear whatever shenanigans we witness in the political world over the next month is going to have some kind of impact (good or bad) on your portfolio.With this in mind, heres how I think investors should prepare.
1. Ditch the crystal ball
It is, of course, hugely tempting to try and predict whats going to happen and adjust your portfolio accordingly. However, if the last three years have taught us anything, its that no one knows exactly how this period of political turmoil will end. Our current prime minister might even be gone before 31 October.
This being the case, its therefore important to hold investments youd be happy to stick with for the long term and match your risk tolerance, regardless of any short-term volatility. Leave the high-stakes, might-just-make-a-profit-if-I-time-this-right behaviour to the traders.
Its also worth remembering a resolution to Brexit will simply leave a space for some other event or issue to take its place. There will always be something else for markets to worry about.
2. If in doubt drip
Having accepted no one knows whats coming next, it can still be tempting albeit counterproductive from an investment perspective to wait until we know for sure.
As legendary fund manager Peter Lynch once remarked: Far more money has been lost by investors in preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves. The same will surely apply to Brexit.
All stock market journeys are uncertain and its for this reason shares give far better returns than any other asset class over time. Were rewarded for taking more risk than if wed simply held our savings in cash (not recommended, thanks to the eroding power of inflation).
This is why drip-feeding money into your existing holdings or pound cost averaging in market lingo will help avoid investment paralysis. It may feel counter-intuitive, but the message here is simply keep calm and carry on.
3. Buy the world
Theres a tendency for investors to stick with what they know. Thats understandable considering we may use a companys products or services on a daily basis, or know more about an economy if we actually contribute to it. Failing to ensure your holdings are geographically diversified, however, can be problematic if the companies or country youre invested in enter a prolonged sticky patch.
Its for this reason Id recommend having exposure to markets other than the UK. This isnt about attempting to jump in and out of investments to reap maximum profit. Its about allocating your capital prudently so your portfolio remains stable and you can sleep at night.
Aside from moving some of your cash into economies that couldnt care less about Brexit, its also worth contemplating whether youre sufficiently invested in assets that, while unlikely to outperform, tend to be less correlated with shares (e.g. bonds, gold).
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