A checklist of things to consider during periods of uncertainty.
5 Tips for investors for Brexit
As the 31 October draws ever closer, investors and the British electorate are still none the wiser and the stock market continues to yearn for a directional steer. The arguments have been made, the decision has been given and yet there still remains continued uncertainty as to whether we will or won’t be leaving the EU on 31 October.
The Prime Minister remains resolute in his rhetoric – deal or no deal, we will be leaving, but for investors, concern remains around the uncertainty and potential market volatility. To that end, investors should be keeping a close eye on the markets during the middle of October and in particular w/c 14 October; for this is the week that the EU will have their final chance to review and discuss whatever proposal has been put before them.
At the time of writing, nothing has significantly changed. The countdown clock continues, and what the eventual outcome will be still remains unknown. The past year or so has shown anything is possible and that we should always be prepared for the unexpected, taking nothing for granted. No matter what the outcome, there will be winners and losers in terms of the markets and potential company fortunes. Market volatility as and when it occurs is often seen by many as the enemy of private retail investors, yet if carefully considered; it’s possible to make it your friend. Outlined below are some key considerations for investors, giving confidence and reassurance on how to avoid unnecessary investment decisions.
1. Do not make irrational decisions
Firstly, investors need to take a step back and consider why they are investing. If the investment goal, and time frame associated with it, hasn’t changed and firmly remains in the future then my advice would be to sit tight. It is very easy to get swept along with a tide of emotion and should markets react, a cool and logical approach will serve you better. Whilst selling may be the right course of action for some, for others holding off and taking stock may be more beneficial. It can be painful looking at a sea of red figures within a portfolio, but unless you have to cash in and realise your investments, the figures simply remain a paper loss and no loss or gain is realised until such time as encashment.
2. Volatility creates buying opportunities
The Warren Buffett quote of ‘Be fearful when others are greedy and greedy when others are fearful’ is possibly opportune when markets are volatile. For many, the natural reaction is to sell, whilst for those with a keen eye and stomach for turbulence, volatility can create a buying opportunity.
3. Drip feed into the market
The ability to drip feed money into your investment ideas during volatile times is a perfect strategy to help navigate such conditions. Adopting a ‘little and often’ approach is a very achievable strategy, and drip-feeding into an investment can help reduce exposure to volatility whilst also benefiting from the returns.
4. Risk vs Reward
Be realistic in your expectations. If you are saving for a specific reason or event and need to achieve a certain level of capital, you need to consider the overall timeframe and approximate level of return required to achieve that. Does the investment being considered carry a higher degree of risk than you are comfortable with taking? If the answer to this is yes, then the investment is likely to be unsuitable and will likely make you feel uncomfortable, potentially causing sleepless nights and a vast amount of worry. Always ensure you are comfortable with the risk being taken and if needed, realign and appraise your objectives.
5. Be flexible, be wary and consider removing stop losses
During volatile markets, it is crucial for investors to identify and appreciate their tolerance to potential losses.
Stop loss limits are a wonderful tool in normal market conditions but investors should appreciate they also have the potential to be your worst enemy. In times of extreme market volatility they could be triggered at prices way below the level set, due to prices plummeting and subsequently falling through that level.
For those actively seeking to benefit from the volatility, a buy limit order may be worth considering. It may allow investors the potential flexibility to pick up an investment at a significantly reduced price, compared to normal market conditions.
If you're considering adding or removing limits to your investments, you can do this directly in our app or by accessing your account online.
Remember, only buy what you know and understand and spend what you can afford to lose.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.