Ask Janne: Will Brexit Affect my Investments?
Hi Janne, I notice with interest that the markets have recovered from the Brexit vote. Do you think this will cause issues in the market later on and how should I go about protecting my investments from further fallout?
Regards, Andrew. Avalon
Hi Andrew, thanks for your email.
Brexit was certainly a fascinating piece of news for me and I watched with interest as both world share markets and the value of the pound sterling fell dramatically. My advice to clients at the time was that volatility is a normal part of investing and that markets would not necessarily stay low. As we now know, recovery was swift. It is likely that there will be further impact of the market as the effects of Brexit play out. This may be in the form of political and social issues, economic problems for the UK and or Europe, and of course the possibility of further exits from the European Union.
When it comes to protecting your investments, the strategy changes according to your situation. If you are 30 years old and your investments are held in superannuation, then time will most certainly even out volatility. You can be comfortable your investments will recover and have further growth over the 30 years that your money will stay invested in superannuation. This does not mean that you don't have to take care to ensure the maximum return from your money over that time, but short-term volatility will not affect your final outcome.
Two things which may improve your final outcome include regular investment, e.g. monthly or quarterly contributions, and extra lump sum investment when markets fall dramatically. You probably won't be able to pick the bottom of the market, but you do know when it is lower than it has been.
This is different, of course, if you are retired and drawing income from your investments each month. If that is the case, much more attention is required. For retirees, these are my 'rules'
Maximise income within your investments: this will mean that in tough times you are drawing little or no capital from your investments. This in turn gives your investments time to recover. If you make a capital withdrawal when markets are low, that money can never recover because it has been withdrawn from your investment.
Minimise downside risk: you need to look at strategies that will protect you from too much volatility. In the past when interest rates were high, you could invest a significant proportion of your money in term deposits and this gave you both income and capital stability. Record low interest rates have removed this opportunity so we need to be a bit clever in how we achieve this.
Of course, it is most important to obtain professional advice. There are significant differences in the needs of investors, so the advice may be completely different for two seemingly similar financial circumstances. If you would like more information on protecting the value of your investment, please talk to your financial planner or give me a call on 9452 7871.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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