Doctors and medics are a little apprehensive about how Brexit, Schmexit will affect their investments. When there’s a change in geopolitics inevitably there comes scaremongering and hype, and with Brexit, this is no exception.
Should you be worried or is this just short term noise?
For as long as I can remember, geopolitical events have, from time to time influenced investment markets. To name just a few, we’ve had leaving the Exchange Rate Mechanism, followed by wars in the Middle East; the Global Financial Crisis; hung parliaments (2010 and 2017); the EU Referendum and subsequent negotiating brinkmanship in the lead up to 29th March 2019; and let’s not forget the election of US President Donald Trump!
Whilst many of these events caused volatility in the investment markets, time and again that volatility has proved to be relatively short term.
Should you invest or save?
If you invest you have the potential to make more money over the long term, and you have to accept a degree of risk. This is, of course, not guaranteed and is certainly riskier than simply putting your money away in a savings account.
The bigger the risk, the greater the potential for rewards, but also the greater the potential for loss! Especially in the short term. Investing should be for the long term – at least 5 years, ideally 10 or more.
6 rules of investing
1. Contingency fund
Identify and keep a ‘contingency fund’ for life’s emergencies, including planned spending within the next 5 years. Typically, an emergency fund might be 6 months’ worth of outgoings. Don’t forget to factor in that car change or big holiday you’ve promised yourself!
2. Risk tolerance
Can you afford and are you prepared to take a risk, and to what degree? This is your emotional view on risk and your financial capacity for loss! Your financial adviser will take all these factors into account to help establish, and agree with you, your overall attitude to risk.
3. Surplus money
Only invest money surplus to what you require in your ‘contingency fund’. Keep enough in cash for your life’s emergencies and planned spending. That way you shouldn’t need to dip into your investments, especially if they are affected by short-term fluctuations.
Beware of the risk of inflation. Holding too much in cash is not totally ‘risk-free’, if the rate of inflation is higher than the rate you can earn in interest.
5. Invest wisely
Don’t keep all your ‘investment’ eggs in one basket. Spread your investment around different sectors in order to benefit from diversification. If one investment falls, it could be counterbalanced by another.
Remember, it’s time in the markets that counts, not timing the markets. Knowing when to buy or sell an investment can be stressful, no-one can predict the future. It’s far better to use time – not timing – to your advantage. The longer you invest, the more likely you are to have the potential for a healthy return, regardless of short-term blips or fluctuations.
Don’t be overly concerned by the short-term noise or worry about volatility and market movements, week-to-week, month-to-month or even year-to-year. Instead, focus on your long term goals. If you are investing with long-term objectives and you remain comfortable with your risk profile, there is little reason to deviate from the current strategy unless your circumstances change.
Unlike cash, investments carry additional risks. They can fall as well as rise, so remember you could get back less than you invest! If you are unsure of the suitability of an investment, please speak to your financial adviser.
You may find our Guide to Investment & Risk useful. This adds an extra layer of evidence of how investments are affected by geopolitics, by illustrating how markets performed during and after the Global Financial Crisis.
Do you think Brexit, Schmexit will affect your investments? Let us know by leaving a comment below.